Treasury Bills, Notes, and Bonds Discussion

[copyright1997reloaded]

The market appears to be seeing a top in rates. Hopefully people have been extending duration for quite some time now.

If this is or was the top bonds may continue this rally which at least will help those bonds already in your portfolio.

Respectfully, there have been calls that we are at the peak repeatedly.

Ironically, part of the reason for the two day bond market rally is that there is less long term treasury issuance than expected (which means more on the short end). Perhaps I'm dense, but further shortening borrowing term when we are running out-of-control deficits doesn't seem like a good long term strategy.

OTOH, I bought some 18-month 5.5% CD's today (thus extending my weighted time to maturity), so I speak out of both sides of my mouth on this one.

 

[Montecfo]

Respectfully, there have been calls that we are at the peak repeatedly.



Ironically, part of the reason for the two day bond market rally is that there is less long term treasury issuance than expected (which means more on the short end). Perhaps I'm dense, but further shortening borrowing term when we are running out-of-control deficits doesn't seem like a good long term strategy.



OTOH, I bought some 18-month 5.5% CD's today (thus extending my weighted time to maturity), so I speak out of both sides of my mouth on this one.

Yes you do, though respectfully.



Well, the bond rout was due in part to the auction schedule. Supply is a big part of the Treasury rate moves though they have been mislabelled as due to inflation expectations.

As far as how close we are the market is telling us.

 

[Midpack]

The market appears to be seeing a top in rates. Hopefully people have been extending duration for quite some time now.

If this is or was the top bonds may continue this rally which at least will help those bonds already in your portfolio.

I’m a neophyte, but while we may be at/near the peak - what makes you think the window is closing soon? While inflation is one factor, I would think deficit spending will force the Fed to sell more bonds than they’d like keeping rates up for quite a while. No?

 

[Montecfo]

I’m a neophyte, but while we may be at/near the peak - what makes you think the window is closing soon? While inflation is one factor, I would think deficit spending will force the Fed to sell more bonds than they’d like keeping rates up for quite a while. No?

I did not say window is closing. But if rates are peaking or have peaked then the narrative has changed and ultimately rates will go lower. So if people have been waiting for higher rates in order to extend, that wait may be over.

Treasury auction schedule is certainly a factor though it is known in the near term. The market could certainly turn negative on US but when the economy slows, bonds usually rally.

What will happen? Who knows but the market is currently pointing in a direction. I do not expect rates to fall sharply until the Fed begins to cut.

From memory, since 1970 median time from last Fed hike to first cut has been 8 months. Last Fed hike was July 26. Was that the last one?

 

[Brat]

"Diamond NestEgg" has an interesting video on I-Bonds on YouTube.

Title: Highest I-Bond Fixed Rate in 16 Years Should I buy or ..

Near the end she discusses when during a month should you buy or redeam an I-Bond.

 

[audreyh1]

This week’s T-bill auction results:

Bills	CMB	CUSIP	Issue Date	High Rate	Investment Rate	Price per $100
4-Week	No	912797HN0	11/07/2023	5.290%	5.400%	$99.588556
8-Week	No	912797HX8	11/07/2023	5.300%	5.433%	$99.175556
13-Week	No	912797GE1	11/02/2023	5.325%	5.488%	$98.653958
17-Week	No	912797JG3	11/07/2023	5.340%	5.527%	$98.234833
26-Week	No	912797HH3	11/02/2023	5.320%	5.558%	$97.310444
52-Week	No	912797HE0	11/02/2023	5.135%	5.433%	$94.807944

 

[Chuckanut]

"Diamond NestEgg" has an interesting video on I-Bonds on YouTube.

Title: Highest I-Bond Fixed Rate in 16 Years Should I buy or ..

Near the end she discusses when during a month should you buy or redeam an I-Bond.

I assume this link is what you are referring to:

 

[Brat]

Yes

 

[Chuckanut]

Yes

The young woman makes a lot of sense based upon what I viewed. It’s seems like a good primer for those who are unfamiliar with I bonds. Thanks for mentioning it.

 

[joesxm3]

I am not that good at working Twitter but I ran into a tweet thread that goes into great detail on explaining how the treasury auctions work. Maybe someone better skilled can make this into a better post and link to this stuff.

https://twitter.com/x/status/1577334009092198400

https://twitter.com/x/status/1577334011860377600

 

[JoeWras]

I am not that good at working Twitter but I ran into a tweet thread that goes into great detail on explaining how the treasury auctions work. Maybe someone better skilled can make this into a better post and link to this stuff.

https://twitter.com/x/status/1577334009092198400

https://twitter.com/x/status/1577334011860377600

I think it is fine as is. Just visit it. He does a good job.

There are similar web sites out there. I had one bookmarked from CNBC (looks like James may have even used it as a source), but it is not rendering correctly right now.

 

[JoeWras]

We've moved to a new stage of surveillance on the treasury market watch.

Offering sizes.

Except for extreme geeks, nobody really cared about the size of the offerings. Now, the pundits are taking notice. This is all part of our government dealing with increasing debt load.

From a practical matter for the investor, it means better yields. More bill, notes and bonds leads to better yields. It is one of those things that makes sense once you put yourself in bond mode instead of stock mode. Larger stock offerings suppress the stock price. The stock is diluted. That's equities.

Bonds are different when you consider yield. Larger offerings means less competition at auction, so the buyers can slide their bids to higher yields and win the auction.

Of course, the final auction has many reasons for the result, not just supply. I just find it interesting I'm seeing analysts mentioning it more and more.

 

[Midpack]

I’ve been thinking about what I’ll do with the sizeable “ballast” portion of my AA when yields inevitably fall. Back to bond funds? For those not willing to chase the nth degree of yield, doesn’t look like we’d get hurt going (much) longer on duration for Treasuries or bonds anytime now - not that’s it urgent yet (deficits may keep yields up for a while?). Selling off shares of 5% treasuries as needed in the years ahead shouldn’t be too painful if necessary? May be a time where ‘why keep playing after you’ve won the game’ applies to fixed income? 5% for ballast ain’t bad…

 

[COcheesehead]

How do folks square up what once was considered safe, now has a negative outlook?

 

[Fermion]

How do folks square up what once was considered safe, now has a negative outlook?

Yes, but negative compared to what? The other countries whose currency is used as a world standard?

 

[COcheesehead]

Yes, but negative compared to what? The other countries whose currency is used as a world standard?

It’s not really a comparison, it’s the view of an entities ability to afford the debt.

I have never bought a bond with a negative outlook and won’t in this case either. It’s just an odd circumstance. A private entity likely now has a better chance of covering its debt, than the US government.

 

[Fermion]

It’s not really a comparison, it’s the view of an entities ability to afford the debt.

I have never bought a bond with a negative outlook and won’t in this case either. It’s just an odd circumstance. A private entity likely now has a better chance of covering its debt, than the US government.

A private entity can't just tell anyone around them, "yo, give us more money" like the fed can.

 

[MichaelB]

A private entity can't just tell anyone around them, "yo, give us more money" like the fed can.

You mean the US Treasury. It’s a valid point.

It’s not really a comparison, it’s the view of an entities ability to afford the debt.

I have never bought a bond with a negative outlook and won’t in this case either. It’s just an odd circumstance. A private entity likely now has a better chance of covering its debt, than the US government.

Actually, no. See Fermion’s point. The Treasury can always print money to meet its obligations, which is why it is called “risk free”.

 

[tulak]

You mean the US Treasury. It’s a valid point.

Actually, no. See Fermion’s point. The Treasury can always print money to meet its obligations, which is why it is called “risk free”.

Which makes me wonder how they handle TIPS, or some extent iBonds, which have a guaranteed real yield.

The government can easily print more money, making the nominal yield treasuries of today worth less over time (imagine 10%+ inflation). But what about TIPS, where they have to pay a real yield above inflation?

It could be that there aren’t enough TIPs/iBonds in circulation that it doesn’t matter?

 

[MichaelB]

Which makes me wonder how they handle TIPS, or some extent iBonds, which have a guaranteed real yield.

The government can easily print more money, making the nominal yield treasuries of today worth less over time (imagine 10%+ inflation). But what about TIPS, where they have to pay a real yield above inflation?

It could be that there aren’t enough TIPs/iBonds in circulation that it doesn’t matter?

TIPs are about 10% of total issuance. The Treasury gets back a bit of that in the form of taxes on interest.

 

[COcheesehead]

You mean the US Treasury. It’s a valid point.


Actually, no. See Fermion’s point. The Treasury can always print money to meet its obligations, which is why it is called “risk free”.

Somebody has to buy those bonds. Last week’s auction was a bit sketch. One of the biggest buyers, the Chinese are now sellers.

 

[Fermion]

Somebody has to buy those bonds. Last week’s auction was a bit sketch. One of the biggest buyers, the Chinese are now sellers.

I actually think the biggest buyer of US bonds is the US

 

[COcheesehead]

I actually think the biggest buyer of US bonds is the US

It’s actually Japan, China and the UK top 3.
https://usafacts.org/articles/which...anuary 2023, the,and Luxembourg ($318 billion).

So #2, is starting to exit.

 

[Fermion]

Which makes me wonder how they handle TIPS, or some extent iBonds, which have a guaranteed real yield.

The government can easily print more money, making the nominal yield treasuries of today worth less over time (imagine 10%+ inflation). But what about TIPS, where they have to pay a real yield above inflation?

It could be that there aren’t enough TIPs/iBonds in circulation that it doesn’t matter?

Lets take an extreme example.

You have a million dollars in TIPS, paying $200,000 because inflation is 20%. The government taxes you 40% on that $200,000, so they take back $80,000.

 

[Fermion]

It’s actually Japan, China and the UK top 3.
https://usafacts.org/articles/which...anuary 2023, the,and Luxembourg ($318 billion).

Japan remains the largest NON-U.S. holder of U.S. government debt