Govt to restart selling 30 year treasuries

[cute fuzzy bunny]

http://story.news.yahoo.com/news?tmpl=story&cid=530&e=4&u=/ap/20050504/ap_on_bi_ge/30_year_bond

Anyone want to ponder on what this means and if there are any opportunities?

The first one I noted is existing 30 year treasuries just got a good bit cheaper to buy on the secondary market and yields got pushed up. A buying opp?

 

[laurence]

O.K., so explain to the ignorant guy, the yeild is pushed up because the price to buy went down, right? As in, 10k bond yeilding 4% sells for 9k thus 4.4% yield? Is the fact that at redeaming the bond will still be worth 10k nominal dollars get factored into that? So confused!

I would be scared to lock up my money for decades at a 4.6% rate.....

 

[cute fuzzy bunny]

Basically yes...stocks and bonds generally have a fixed dividend %, the yield is a function of that dividend vs the underlying bond or stocks value/price. Price goes down, yield goes up. Functional dividend rate remains the same.

In your example you would pay $9k for the 10K bond, get the 4.4% and then turn it back in for the original 10k principal amount when the bond matures. That extra 1k you'd make at the end is not factored into the yield.

And you're right, this is not a good deal at all; short rates are climbing into long rates back pocket right now. Its very strange.

 

[JB]

It's interesting that the threat of more supply drove the prices down so much. I wonder if this move has something to do with Greenspan's 'conundrum'.

 

[cute fuzzy bunny]

I think its because the new issues will likely carry a higher interest rate than the existing secondary 30 years pay.

 

[laurence]

Now if I had my house paid off, a bunch of cash sitting on the sidelines, I'd hope for a real run-up in the 30 year rates, and if we had a bout of inflation, might be tempting to "pick the top" and grab some 9-10% 30 year bonds (ah, fantasyland). Th, I could see you dreaming of that scenario!

 

[cute fuzzy bunny]

Eh, at these rates you're better off with ibonds or tips. They pay the same and they'll keep tabs with CPI.

And we all know how I feel about those...

 

[JB]

Exactly, they will have to push rates up in order to attract buyers. So, this move could help adjust for the disparity in st vs lt rates.

 

[MJ]

TH, is it my imagination or are u working full time to increase your number of posts. This thread has 4 already.

MJ

 

[cute fuzzy bunny]

Hey...JG breaks his up by paragraph and/or spontaneous idea...I gotta do something to compensate.

 

[laurence]

I was thinking of posting jokes, with the question in one post and the punch line in the next. Then I realised that if I posted five jokes a day I wouldn't catch up with the two of you until next year, and that's only if you two stopped posting, which is about as likely as Barbera Striesand singing at a Haliburton Christmas party (ba-dump-bump! Thank you, I'll be here all week, try the veal!). So I've let that dream go. I'll just be content to pass up H****.

 

[cute fuzzy bunny]

I'm content to pass him up...

 

[uncledrz]

Now if I had my house paid off, a bunch of cash sitting on the sidelines, I'd hope for a real run-up in the 30 year rates, and if we had a bout of inflation, might be tempting to "pick the top" and grab some 9-10% 30 year bonds (ah, fantasyland).  Th, I could see you dreaming of that scenario! 

laurence
the thought of 9-10% bonds only looks good now because rates are at a historic low. If (when) inflation kicks in those rates won't look as attractive.
Government bonds were 14-15% in the early 80's, but not much higher than the inflation rate and the bonds didn't look nearly as attractive as hard assets that had an inflation fighting factor.
Uncledrz

 

[laurence]

laurence
the thought of 9-10% bonds only looks good now because rates are at a historic low. If (when) inflation kicks in those rates won't look as attractive.
Government bonds were 14-15% in the early 80's, but not much higher than the inflation rate and the bonds didn't look nearly as attractive as hard assets that had an inflation fighting factor.
Uncledrz

Ah, but if you were clairvoyant and picked up a bunch of 30 year 15% bonds back in the early 80's, you'd look like a genius now, right? And if you could just pick the right six numbers when you play the lotto...

I won't try to pick the top, I'm not that smart!

 

[Mr._johngalt]

All of my directly owned bonds are callable at some point.
Unlikely that any will be called near term with the continuing
run up in rates. I decided going in that I could live with both
the rates and the callability feature.

JG

 

[ak4195]

"The first one I noted is existing 30 year treasuries just got a good bit cheaper to buy on the secondary market and yields got pushed up. A buying opp?"

No,final opinion will be made in august i believe,so let the smoke clear some between now and then.Personally i think its just jawboning,last night the $ took a decent hit and bonds were pretty close to challanging a previous high in the charts.Personally if rates back up more and pull the belly of the curve with it,id be a buyer of say 5yr bonds and add some to 10 yr for bond ladder extension.As to inflation concerns,remember most people are looking thru the rear view mirror,and as of the moment,bond bears in intermediate to long end have been and are still as of the moment wrong

 

[ats5g]

If the Treasury starts issuing Year TIPS again, I'll be interested. Long term nominal bonds don't hedge my real liabilities. Other countries [France, England] have issued or are going to issue bonds with maturities of up to 50 years. Insurance companies are probably drooling over those long term bonds.

- Alec