When to go long with Treasury Bonds/Notes?

[wanaberetiree]

Hello,

As many of you here I am using my ca$h to buy T-bills, I use 8 weeks.

I am thinking that sometime in the future when it will be more clear that the Feds will stop interest rate hikes, it will be a good time to start buying longer-term treasuries maybe 10-20 years, etc.

My thinking process is that if I got long-term bonds and interests start coming down, and I need cash, I will be able to sell bonds with profit.

Does this sound like a reasonable assumption?

Thx

[OldShooter]

I'm looking for my Magic 8 Ball right now ... pls stand by.

[wanaberetiree]

Quote:

Originally Posted by OldShooter I'm looking for my Magic 8 Ball right now ... pls stand by.

You must be all in cash then

[Chuckanut]

d

Quote:

Originally Posted by wanaberetiree My thinking process is that if I got long-term bonds and interests start coming down, and I need cash, I will be able to sell bonds with profit. Does this sound like a reasonable assumption?

And if interest rates go higher? Are you prepared to sell a 10+ year Treasury at a loss?

I don't know what will happen to interest rates two years from now much less 10+ years from now. IMO, today's long term rates are not high enough to reward me for taking such a risk. If we ever get double digit rates on 10+ year bonds, I would reconsider. For now, I still think equities or TIPS are better for 10+ years. Just my opinion. My crystal ball is cracked, I can't read minds, and my time machine is broken. YMMV.

[audreyh1]

I never buy anything longer duration than 5 years, but that’s just me. I’m also not an income investor.

[wanaberetiree]

Quote:

Originally Posted by Chuckanut d And if interest rates go higher? Are you prepared to sell a 10+ year Treasury at a loss? I don't know what will happen to interest rates two years from now much less 10+ years from now. IMO, today's long term rates are not high enough to reward me for taking such a risk. If we ever get double digit rates on 10+ year bonds, I would reconsider. For now, I still think equities or TIPS are better for 10+ years. Just my opinion. My crystal ball is cracked, I can't read minds, and my time machine is broken. YMMV.

It is just my assumption that the rates will go down.
The real estate is cooling off, inflation is moderating etc.

Do you expect that to be otherwise?

And yes, any investments I do I am prepared to sell at loss (not happily) if need be

[pb4uski]

At present, my ladder is about 3-3/4 years and I'm not taking any withdrawals. So the idea that I have in mind is that as bonds mature, I'll add a rung to the end of the ladder, but make the rungs 3/4 the size of the current rungs, so that over time I end up extending the ladder from 3-3/4 years to 5 years.

Will that be optimal? Who knows, my crystal ball is broken, but I can't see it hurting me.

[audreyh1]

Forecasting rates is tough. Right now IMO the lower long rates indicate that investors believe that either the Fed will cause a recession, or that the Fed will give up and drop rates for some other reason (that they don’t believe the Fed will follow through on their stated plan).

Investors have gotten used to the long periods of Fed rates near zero that have occurred since 2008. But they have forgotten that those low rates occurred during periods of often well under 2% inflation, and even slight deflation threats at times. Globalization of labor and goods and smooth just in time supply chains helped keep inflation low, these were seriously disrupted by the pandemic. I get the feeling these investors think Fed Funds Rate near 0 is “normal” even though the world has changed.

I have no idea what will happen this year, but I doubt there will be a Fed Funds Rate back near zero for a very long time (barring some global or financial crisis) and if we get through this year with a “soft landing” and the economy starts strengthening again, long rates will “normalize” closer to pre-2010 rates.

My fuzzy crystal ball.

[Montecfo]

Even under heavy monetary stimulus, inflation stayed well under the Fed's 2% "target" during what I call the Fed era (2008-present) until the Covid era fiscal stimulus. US demographics suggest slow steady state growth and low inflation. There are some structural changes that suggest higher costs (mainly re-shoring) but hard to see steady state inflation meaningfully higher than recent pre-covid experience unless federal spending continues to far exceed receipts.

A yield curve inversion usually corrects with lower short-term rates-it almost always has.

Given this I think we may have seen the highs on interest rates for this cycle absent a new inflation spike or an external evert such a dramatic change to oil supplies.

Mid to long term rates appear to have peaked in October. That was the best time to lengthen maturities in my view. Second best time appears to be now.

If you ladder bond maturities you never have to worry about hitting rates at the top. That is my tack.

[wanaberetiree]

Quote:

Originally Posted by audreyh1 pre-2010 rates

What do you call those? 1-2%?

[audreyh1]

Quote:

Originally Posted by wanaberetiree What do you call those? 1-2%?

Before 2008 the 10-year treasury often yielded above 4%. https://www.macrotrends.net/2016/10-...te-yield-chart look at the 20 year view.

[wanaberetiree]

Quote:

Originally Posted by audreyh1 Before 2008 the 10-year treasury often yielded above 4%. https://www.macrotrends.net/2016/10-...te-yield-chart look at the 20 year view.

I was thinking 1-2% prime rate.

But ok I see
Then you say 4% the 10-year treasury, but they pay now %4.125

[audreyh1]

Quote:

Originally Posted by wanaberetiree I was thinking 1-2% prime rate. But ok I see Then you say 4% the 10-year treasury, but they pay now %4.125

The 10 year treasury is currently at 3.74%. The most recent auction on 2/8/23 it came in at 3.613%.

It only briefly crossed 4% last Oct/Nov and otherwise has been below 4% since early 2008.

[FiveDriver]

Yes, and FZDXX is paying 4.47% as of 1/31/23. I'll take a wait and see approach while the FED studies the next move.

[wanaberetiree]

Quote:

Originally Posted by audreyh1 The 10 year treasury is currently at 3.74%. The most recent auction on 2/8/23 it came in at 3.613%. It only briefly crossed 4% last Oct/Nov and otherwise has been below 4% since early 2008.

I looked at the 10 year issued 01/17/2023 and used Interest Rate
But that’s irrelevant

More interesting that you feel that this as good as it gets

Need to digest

[wanaberetiree]

Quote:

Originally Posted by FiveDriver Yes, and FZDXX is paying 4.47% as of 1/31/23. I'll take a wait and see approach while the FED studies the next move.

I think money market funds are not part of this consideration
They are for very short term IMHO

And don’t offer any tax preferable treatment

[audreyh1]

Quote:

Originally Posted by wanaberetiree I looked at the 10 year issued 01/17/2023 and used Interest Rate But that’s irrelevant More interesting that you feel that this as good as it gets Need to digest

What I said was that I eventually would expect the 10yr to return to pre-2008 levels (thus above 4%) as IMO we do not have the disinflationary globalization pressures that we had experienced before the pandemic.

That may not happen this year - certainly not if we experience an economic slowdown - it’s more of a longer term outlook.

[Montecfo]

Quote:

Originally Posted by audreyh1 What I said was that I eventually would expect the 10yr to return to pre-2008 levels (thus above 4%) as IMO we do not have the deflationary globalization pressures that we had experienced before the pandemic. That may not happen this year - certainly not if we experience an economic slowdown - it’s more of a longer term outlook.

OCD: observations usually spot on but I think you mean "disinflationary" .

[audreyh1]

Quote:

Originally Posted by Montecfo OCD: observations usually spot on but I think you mean "disinflationary" .

Right, thanks.

[COcheesehead]

I am income with growth investor and for the income part I just use a mechanical bond ladder strategy for both a muni and a taxable ladder. Maturing bonds are reinvested at the long end. My ladders started at a 10 year duration. They are now down to closer to 9 years with the target being taking SS at 70 to replace some of the ladder income.
There are threads on here about timing yields - I am not that good, but my boring ladders have captured some nice longer term yields - 6%+ that are now long gone. There were a couple spike points last year that in hindsight look pretty good. If you bought bonds anywhere close to those points, you came out well. Overall my yield is 5.2% with a big portion being tax free.

I don’t buy treasuries, but try and buy call protection as much as possible. My ladders are over funded so if a few get called, we’re fine. We have way more income than we need so a large portion gets reinvested elsewhere in the portfolio.