Anyone else waiting for the 20 Year to hit 5.0%?

[53anddone]

Feels like an entirely different world from when I posed this question. Frankly i just bought a 3 month T-Bill and am happy to just get through the next 3 months without worrying about it. Will see what's up come August but I expect the 20 at 5% will still be there.

 

[Earl E Retyre]

OK, I cannot believe I did this but, I bought my first 20 year treasury bond. It said the current value would be 4.993% but I guess I will find out tomorrow (after auction) how far off it is. I went back and forth how much to buy and decided to only purchase $30k since this is my first time buying at auction. I have bought a bunch of primary and secondary brokered CDs as well as secondary treasuries but never a new auction treasury and never 20 years. It is my opinion that rates will come down (and if they increase they will increase not much more than 5% and then come back down).

 

[Markola]

The effort to finance the national debt at lower rates is not going so well.

 

[Koolau]

The effort to finance the national debt at lower rates is not going so well.

The law of supply and demand is rarely suspended. The more borrowing - the higher the rates of interest.

 

[Dtail]

The effort to finance the national debt at lower rates is not going so well.

JMHO, but when the tariffs truly do hit the retail area, we could have a spike in rates, at least for a short time period.

 

[Koolau]

JMHO, but when the tariffs truly do hit the retail area, we could have a spike in rates, at least for a short time period.

And, of course, if the tariffs taking effect cause a slowdown, it's possible rates will come down sooner - especially if inflation doesn't kick up due to the tariffs. Lots of "ifs" there, I know. IOW We'll see.

 

[MichaelB]

The effort to finance the national debt at lower rates is not going so well.

There is no effort at all. Financing the national debt at a lower rate does not appear to be an objective of the US Treasury.

 

[aja8888]

As long as everyone (including the world) is buying our treasuries, everything will march on just fine.

 

[Koolau]

There is no effort at all. Financing the national debt at a lower rate does not appear to be an objective of the US Treasury.

You're probably correct. I have no insight into the subject except: Are you suggesting the US Treasury has no ability or desire to seek alternate sources of financing? I assume it was Treasury that came up with I-bonds and Tips in the past. Perhaps some whiz kids or even old, grizzled Treasury "operatives" are w*rking on new-and-improved financing of the debt. Perhaps it could happen??

 

[TickTock]

Long-term gov't bonds have returned real compound yields of ~2.5% over long time periods. Add in an inflation target of 2% (which I believe is the Fed's stated objective) and you get ~4.5% nominal yields. Could be a component in not seeing efforts to lower rates to finance the national debt.

ETA: Given long-term historical inflation at ~3%, a 5% 20-year UST seems reasonable, providing you don't foresee higher long-term inflation rates or short-term inflation spikes.

 

[DJRR]

You're probably correct. I have no insight into the subject except: Are you suggesting the US Treasury has no ability or desire to seek alternate sources of financing? I assume it was Treasury that came up with I-bonds and Tips in the past. Perhaps some whiz kids or even old, grizzled Treasury "operatives" are w*rking on new-and-improved financing of the debt. Perhaps it could happen??

I believe he is suggesting that if the Treasury had that objective they would have stopped issuing all other debt but 30 year debt when interest rates were so low and locked in the historic rates like anyone with a mortgage did. I assume they believe liquidity across all maturities in the Tbill market, one year, 5 year, etc is important so they still auction those maturities even though it made no sense from a historical basis if all you cared about was lowest rate possible.

 

[MichaelB]

You're probably correct. I have no insight into the subject except: Are you suggesting the US Treasury has no ability or desire to seek alternate sources of financing? I assume it was Treasury that came up with I-bonds and Tips in the past. Perhaps some whiz kids or even old, grizzled Treasury "operatives" are w*rking on new-and-improved financing of the debt. Perhaps it could happen??

Not sure what you mean by alternate sources. The US Treasury determines the “effective duration”, or mix of maturity dates, including inflation linked bonds.

Their objective is not to minimize the interest cost but instead to offer the “mix” that markets want. In the past there hasn’t been much demand for inflation linked bonds or long term bonds.

 

[MichaelB]

I believe he is suggesting that if the Treasury had that objective they would have stopped issuing all other debt but 30 year debt when interest rates were so low and locked in the historic rates like anyone with a mortgage did. I assume they believe liquidity across all maturities in the Tbill market, one year, 5 year, etc is important so they still auction those maturities even though it made no sense from a historical basis if all you cared about was lowest rate possible.

I agree with the second part, not so much the first. If the Treasury had financed $10T with long term bonds the primary buyers would have been banks and other institutional investors, and when rates jumped suddenly in ‘22 the banking sector would have become insolvent overnight, with insurers soon the follow.

The Treasury does make sure there is liquidity across all maturities, so they have to follow demand, which is very strong at the short end, and with 10 year bonds, which are the preferred choice of hedge funds.

The bond market is self-correcting. If there is inadequate demand to finance the debt at lower rates, those rates will rise. That’s when it gets painful.

 

[Koolau]

Not sure what you mean by alternate sources. The US Treasury determines the “effective duration”, or mix of maturity dates, including inflation linked bonds.

Their objective is not to minimize the interest cost but instead to offer the “mix” that markets want. In the past there hasn’t been much demand for inflation linked bonds or long term bonds.

Okay. That's good insight. I was just thinking there must be at least "some" creative thinking within Treasury. "How can we come up with more funding for the debt and keep a lid on the interest we pay when we borrow?" Banks do that. Other financial institutions seem to come up with ways to get money as cheap as possible. Maybe Treasury has exhausted the possibilities. (Not suggesting I have any major ideas on the subject - but I didn't get my degree in Finance or whatever degree'd people Treasury hires.)

I'm too young to recall the push for war bonds back in the day. But I still recall when I joined Megacrop that they were still "pushing" US Savings Bonds even though NO one ever bought them. I assume it's because they were constantly seeking gummint contracts.

Nyehhhhh! Probably not worth the brain cells to help Treasury figure this out.

 

[Koolau]

I agree with the second part, not so much the first. If the Treasury had financed $10T with long term bonds the primary buyers would have been banks and other institutional investors, and when rates jumped suddenly in ‘22 the banking sector would have become insolvent overnight, with insurers soon the follow,

The Treasury does make sure there is liquidity across all maturities, so they have to follow demand, which is very strong at the short end, and with 10 year bonds, which are the preferred choice of hedge funds.

The bond market is self-correcting. If there is inadequate demand to finance the debt at lower rates, those rates will rise. That’s when it gets painful.

Yeah, that helps. Forget I asked. I guess after over a hundred years, Treasury's got this figured out. Thanks!

 

[jim584672]

This morning is the cutoff for the new issue 20 year auction.

 

[Surewhitey]

What is the advantage / disadvantage for buying the 20 yr vs TLT?

 

[jim584672]

What is the advantage / disadvantage for buying the 20 yr vs TLT?

You know exactly what you own and no 0.15% annual expense cost.

TLT pays monthly, bonds pay semi-annually.

 

[street]

I'm in year 7 of 5.85%. In 7 years from now I wonder what I will do with that money. When the time comes I will invest it somewhere and my best option at the time.

Yes, I would be interested in a longer term 5% plus guaranty rate of that amount. I still would only allocate a high single number % of my portfolio for a fixed % though.

 

[Earl E Retyre]

(1) From the order I submitted yesterday on Vanguard, when will I know the % that my 20 year treasuries were filled at?

When I submitted yesterday it said 4.993% was the estimated % rate but this morning google says the 20 year rate is 5.035%, so I am hoping I am pleasantly surprised and broke the 5% mark.

(2) How does the auction work? I read that

• non-competitive bids: Bidders agree to accept the rate determined at the auction and are guaranteed to receive their securities.
  Competitive bids: Bidders specify the rate or yield they are willing to accept, and the Treasury accepts bids in ascending order of yield until the full amount is allocated.
• Highest Yield Determines Rate:
  The Treasury accepts bids until the total amount offered is allocated. The highest accepted bid determines the yield that all successful bidders will receive.

So, assuming I am a non-competitive bidder, who are these competitive bidders who get to set the rate for the rest of us? And why does it work this way?

 

[aja8888]

At almost 82, I am not buying any fixed income investment out more than 5 years duration.

 

[jim584672]

 

[Earl E Retyre]

Yay, so I received a 5% treasury for 20 years. Since the price was 99.407798 and accrued interest was $2.44565 it calculated out as costing me $29,895.71 for $30k in bonds. It took me a minute to figure out why I paid less.

I still do not understand how the auction process works and who is really setting the price. But am happy with it. I was initially expecting to pay $30k and for the coupon to be 4.99%. So it exceeded expectations.

Now, we will see if it was a good buy or if % will continue to rise a lot more. If rates go down, I may try and sell $5k of the $30k at a gain, just to learn from that process since I never tried to sell a treasury on the secondary market. One of the main reasons I bought $30k was to learn.

 

[jim584672]

5.114% right now. Pop up after the auction.

 

[Mr T]

5.114% right now. Pop up after the auction.

Where did you find the after auction quote?