1 year treasuries @ 2.4% instead of bond funds?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
johussman
Posts: 29
Joined: Sun Jul 29, 2018 4:18 pm

1 year treasuries @ 2.4% instead of bond funds?

Post by johussman »

According to yahoo finance https://finance.yahoo.com/quote/BND?p=B ... in-srch-v1 BND is down 1.81% on the year and is currently yielding 2.63% BND has an avg duration of over 6 years so there is some interest rate risk here.

short term 1 year tbills have rapidly risen in yield and currently yield ~ 2.4%. 6mo tbills yield ~ 2.1%. For comparison in January 2015 the yield was .25% on 1 year tbill https://ycharts.com/indicators/1_year_treasury_rate so it is very recent that tbills have become a viable alternative to bond funds.

It seems attractive right now to place 100% of bond investments into individually purchased tbills ranging from 6mo to 1year maturities. 0 risk of losing my money with a yield almost as good as BND. Plus the upside of being able to reinvest matured bonds back into tbills if short end rates keep going higher like this.

Am i missing something here or is it a no brainer to go with tbills?
AHTFY
Posts: 173
Joined: Mon Jul 23, 2018 2:33 pm

Re: 1 year treasuries @ 2.4% instead of bond funds?

Post by AHTFY »

It all depends what is your purpose in owning these bonds. If you want to earn some income and then spend the whole in one year, buying a one-year t-bill or CD would make sense. If your bond ownership is part of your overall portolio allocation, you should stick with the long-term bonds because they tend to offset adverse moves in the stock market (if stocks crash, bonds tend to rally whereas the T-bill will hold steady).
livesoft
Posts: 85971
Joined: Thu Mar 01, 2007 7:00 pm

Re: 1 year treasuries @ 2.4% instead of bond funds?

Post by livesoft »

The horse has already left the barn, so who knows?

However, I would never commit 100% of my money to a single strategy like this. But then again, I wasn't 100% total US bond index at the beginning of 2018 either. It would not upset me at all if you do so with your stuff.
Wiki This signature message sponsored by sscritic: Learn to fish.
User avatar
Kevin M
Posts: 15750
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: 1 year treasuries @ 2.4% instead of bond funds?

Post by Kevin M »

johussman wrote: Sun Jul 29, 2018 4:31 pm Am i missing something here or is it a no brainer to go with tbills?
I wouldn't say it's a no-brainer, but I do like 1-year Treasuries, especially in taxable accounts if you pay state income tax. Yield curve is quite steep out to one year maturity, and reasonably steep out to 2-year maturity, so I'd consider going out as far as two years in a taxable account with state income tax. Yield curve flattens out after that, so not much additional yield in return for the extra term risk of extending maturity.

In an IRA, I prefer 2-year CDs, as the yield is higher than 2-year Treasury, and CD yield curve is very steep to 2-year maturity. It's reasonably steep to 3-year maturity, so I've invested some at that maturity as well in IRAs.

A counter-argument is that future yield expectations are factored into the yield curve, which is why it's not a no-brainer. It can be argued that longer term yields aren't expected to increase as much as shorter-term yields, which is why the yield curve is relatively flat beyond two-year or three-year maturities. Most Bogleheads won't worry about any of this, and will just stick with their intermediate-term bond funds.

Kevin
If I make a calculation error, #Cruncher probably will let me know.
Topic Author
johussman
Posts: 29
Joined: Sun Jul 29, 2018 4:18 pm

Re: 1 year treasuries @ 2.4% instead of bond funds?

Post by johussman »

AHTFY wrote: Sun Jul 29, 2018 6:25 pm It all depends what is your purpose in owning these bonds. If you want to earn some income and then spend the whole in one year, buying a one-year t-bill or CD would make sense. If your bond ownership is part of your overall portolio allocation, you should stick with the long-term bonds because they tend to offset adverse moves in the stock market (if stocks crash, bonds tend to rally whereas the T-bill will hold steady).
if stocks crash the 1 year treasury will rally too (assuming the crash is before maturity).

BND gives me interest rate risk. if the yield curve steepens i could get capital losses with BND
Northern Flicker
Posts: 15288
Joined: Fri Apr 10, 2015 12:29 am

Re: 1 year treasuries @ 2.4% instead of bond funds?

Post by Northern Flicker »

if stocks crash the 1 year treasury will rally too (assuming the crash is before maturity).
Assuming a stock crash is accompanied by falling rates, as it often is, 1-yr T-bills will not rally much. The duration will be very short, and the benefit of falling rates will be minimal and short-lived. It is the term exposure of longer maturities in addition to the liquidity and lack of credit risk that enables treasuries with maturities longer than t-bills to rally when stocks crash and rates fall.
Topic Author
johussman
Posts: 29
Joined: Sun Jul 29, 2018 4:18 pm

Re: 1 year treasuries @ 2.4% instead of bond funds?

Post by johussman »

jalbert wrote: Sun Jul 29, 2018 7:30 pm
if stocks crash the 1 year treasury will rally too (assuming the crash is before maturity).
Assuming a stock crash is accompanied by falling rates, as it often is, 1-yr T-bills will not rally much. The duration will be very short, and the benefit of falling rates will be minimal and short-lived. It is the term exposure of longer maturities in addition to the liquidity and lack of credit risk that enables treasuries with maturities longer than t-bills to rally when stocks crash and rates fall.
Long rates are so low right now, in a crash, how much lower can they really go?

previous crashes in the early 70s were accompanied by higher inflation and rates. So it isn't necessarily a given that long bonds will rally in a crash.
MikeG62
Posts: 5054
Joined: Tue Nov 15, 2016 2:20 pm
Location: New Jersey

Re: 1 year treasuries @ 2.4% instead of bond funds?

Post by MikeG62 »

johussman wrote: Sun Jul 29, 2018 4:31 pm
...It seems attractive right now to place 100% of bond investments into individually purchased tbills ranging from 6mo to 1year maturities. 0 risk of losing my money with a yield almost as good as BND. Plus the upside of being able to reinvest matured bonds back into tbills if short end rates keep going higher like this.

Am i missing something here or is it a no brainer to go with tbills?

First, BND has a current SEC yield of 3.13% (this is the yield over trailing 30 days).

Second, I do not think you should place 100% of your fixed income allocation into 1-year Treasuries. However, it would not be unreasonable to place most/all of your "short-term" fixed income allocation into them though. You can ladder the purchases too.

FWIW, I am doing this with my excess cash, except I am using 6-month Treasuries instead. This was cash formerly sitting in online savings accounts and no penalty CD's.
Real Knowledge Comes Only From Experience
Topic Author
johussman
Posts: 29
Joined: Sun Jul 29, 2018 4:18 pm

Re: 1 year treasuries @ 2.4% instead of bond funds?

Post by johussman »

MikeG62 wrote: Sun Jul 29, 2018 7:38 pm
johussman wrote: Sun Jul 29, 2018 4:31 pm
...It seems attractive right now to place 100% of bond investments into individually purchased tbills ranging from 6mo to 1year maturities. 0 risk of losing my money with a yield almost as good as BND. Plus the upside of being able to reinvest matured bonds back into tbills if short end rates keep going higher like this.

Am i missing something here or is it a no brainer to go with tbills?

First, BND has a current SEC yield of 3.13% (this is the yield over trailing 30 days).

Second, I do not think you should place 100% of your fixed income allocation into 1-year Treasuries. However, it would not be unreasonable to place most/all of your "short-term" fixed income allocation into them though. You can ladder the purchases too.

FWIW, I am doing this with my excess cash, except I am using 6-month Treasuries instead. This was cash formerly sitting in online savings accounts and no penalty CD's.
Why shouldn’t I put 100% of my fixed income into 1 year t-bills? Mind sharing an explanation.
AHTFY
Posts: 173
Joined: Mon Jul 23, 2018 2:33 pm

Re: 1 year treasuries @ 2.4% instead of bond funds?

Post by AHTFY »

johussman wrote: Sun Jul 29, 2018 7:10 pm if stocks crash the 1 year treasury will rally too (assuming the crash is before maturity).
If the stock market crashes and 30-year Treasury interest rates fall from 3% to 2% (this is purely hypothetical), 30-year Treasuries will rally about 22%. If the 1-year rate drops from 2.3% all the way to 0%, a 1-year Treasury will gain about 2%.
Northern Flicker
Posts: 15288
Joined: Fri Apr 10, 2015 12:29 am

Re: 1 year treasuries @ 2.4% instead of bond funds?

Post by Northern Flicker »

Long rates are so low right now, in a crash, how much lower can they really go?
Intermediate treasuries hit a low water mark yield around 0.58% in the aftermath of the last crash. T-bills went to zero and were even slightly negative at one point, and stayed near zero for a long time.
User avatar
FIREchief
Posts: 6916
Joined: Fri Aug 19, 2016 6:40 pm

Re: 1 year treasuries @ 2.4% instead of bond funds?

Post by FIREchief »

Add me to those asking "what's wrong with putting 100% into a US treasury portfolio, if that meets my needs?" For me it's TIPS, but the question applies across the board. There is no value to diversification, when the chosen investment is known outcome and zero risk.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
Topic Author
johussman
Posts: 29
Joined: Sun Jul 29, 2018 4:18 pm

Re: 1 year treasuries @ 2.4% instead of bond funds?

Post by johussman »

AHTFY wrote: Sun Jul 29, 2018 7:49 pm
johussman wrote: Sun Jul 29, 2018 7:10 pm if stocks crash the 1 year treasury will rally too (assuming the crash is before maturity).
If the stock market crashes and 30-year Treasury interest rates fall from 3% to 2% (this is purely hypothetical), 30-year Treasuries will rally about 22%. If the 1-year rate drops from 2.3% all the way to 0%, a 1-year Treasury will gain about 2%.

What if the 30 year goes to 5% after the crash due to higher inflation? It’s all market timing nobody knows what the 30 year will do
Grt2bOutdoors
Posts: 25617
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: 1 year treasuries @ 2.4% instead of bond funds?

Post by Grt2bOutdoors »

johussman wrote: Sun Jul 29, 2018 7:35 pm
jalbert wrote: Sun Jul 29, 2018 7:30 pm
if stocks crash the 1 year treasury will rally too (assuming the crash is before maturity).
Assuming a stock crash is accompanied by falling rates, as it often is, 1-yr T-bills will not rally much. The duration will be very short, and the benefit of falling rates will be minimal and short-lived. It is the term exposure of longer maturities in addition to the liquidity and lack of credit risk that enables treasuries with maturities longer than t-bills to rally when stocks crash and rates fall.
Long rates are so low right now, in a crash, how much lower can they really go?

previous crashes in the early 70s were accompanied by higher inflation and rates. So it isn't necessarily a given that long bonds will rally in a crash.
Look to Europe of an example of "just how low" they can go. Europe had or still has negative rates. That's where you pay the government or banks for the right for them to hold your money. You like them apples?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Grt2bOutdoors
Posts: 25617
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: 1 year treasuries @ 2.4% instead of bond funds?

Post by Grt2bOutdoors »

johussman wrote: Sun Jul 29, 2018 7:57 pm
AHTFY wrote: Sun Jul 29, 2018 7:49 pm
johussman wrote: Sun Jul 29, 2018 7:10 pm if stocks crash the 1 year treasury will rally too (assuming the crash is before maturity).
If the stock market crashes and 30-year Treasury interest rates fall from 3% to 2% (this is purely hypothetical), 30-year Treasuries will rally about 22%. If the 1-year rate drops from 2.3% all the way to 0%, a 1-year Treasury will gain about 2%.

What if the 30 year goes to 5% after the crash due to higher inflation? It’s all market timing nobody knows what the 30 year will do
Don't bank on that. Did you see that happen in the last ten years after a severe crash?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
venkman
Posts: 1338
Joined: Tue Mar 14, 2017 10:33 pm

Re: 1 year treasuries @ 2.4% instead of bond funds?

Post by venkman »

johussman wrote: Sun Jul 29, 2018 7:10 pm if stocks crash the 1 year treasury will rally too (assuming the crash is before maturity).
BND gives me interest rate risk. if the yield curve steepens i could get capital losses with BND
With 1-year treasuries, you have reinvestment risk. If the economy goes into recession and the stock market crashes, short term rates will drop severely. When your 1-year bonds mature, you'll be faced with reinvesting the money at much lower yields.

The current, flat-ish yield curve suggests that the market thinks there is a reasonable chance this very thing could happen in the near future.
bberris
Posts: 2412
Joined: Sun Feb 20, 2011 8:44 am

Re: 1 year treasuries @ 2.4% instead of bond funds?

Post by bberris »

AHTFY wrote: Sun Jul 29, 2018 7:49 pm
johussman wrote: Sun Jul 29, 2018 7:10 pm if stocks crash the 1 year treasury will rally too (assuming the crash is before maturity).
If the stock market crashes and 30-year Treasury interest rates fall from 3% to 2% (this is purely hypothetical), 30-year Treasuries will rally about 22%. If the 1-year rate drops from 2.3% all the way to 0%, a 1-year Treasury will gain about 2%.
Stocks can crash from inflation too, decimating bonds. The scenario you assume is a deflationary crash. The very long term historical correlation of stocks and bonds is highly variable but averages to close to 0. Only since the early 2000s has it been consistently negative.
gwrvmd
Posts: 820
Joined: Wed Dec 02, 2009 7:34 pm
Location: Calabash NC

Re: 1 year treasuries @ 2.4% instead of bond funds?

Post by gwrvmd »

Having 3-4 years expenses in 1yr treasuries and all the rest in diversified stock index funds is exactly what Jim Cloonan, the founder of AAII (American Association of Individual Investors) advocates in his new book "Investing at Level 3"

I have done that since 2005 when I retired and my assets have almost tripled. I didn't sell anything in 2008 because I had 3 years of income in Treasuries.

I didn't have a name for what I was doing. Last year I learned I was "Investing at Level 3"

I cannot understand how people can retire with a 30 year life expectancy and think they can get there with 40% -60% bonds..............Gordon.......Go to aaii.com and review the book
Disciple of John Neff
User avatar
whodidntante
Posts: 13089
Joined: Thu Jan 21, 2016 10:11 pm
Location: outside the echo chamber

Re: 1 year treasuries @ 2.4% instead of bond funds?

Post by whodidntante »

AHTFY wrote: Sun Jul 29, 2018 7:49 pm
johussman wrote: Sun Jul 29, 2018 7:10 pm if stocks crash the 1 year treasury will rally too (assuming the crash is before maturity).
If the stock market crashes and 30-year Treasury interest rates fall from 3% to 2% (this is purely hypothetical), 30-year Treasuries will rally about 22%. If the 1-year rate drops from 2.3% all the way to 0%, a 1-year Treasury will gain about 2%.
It's not the YTM going down that causes the price appreciation, it's the price appreciation that causes the YTM to drop. In the secondary market at least, which is where most bonds live their boring little lives.
Valuethinker
Posts: 48944
Joined: Fri May 11, 2007 11:07 am

Re: 1 year treasuries @ 2.4% instead of bond funds?

Post by Valuethinker »

johussman wrote: Sun Jul 29, 2018 7:35 pm
jalbert wrote: Sun Jul 29, 2018 7:30 pm
if stocks crash the 1 year treasury will rally too (assuming the crash is before maturity).
Assuming a stock crash is accompanied by falling rates, as it often is, 1-yr T-bills will not rally much. The duration will be very short, and the benefit of falling rates will be minimal and short-lived. It is the term exposure of longer maturities in addition to the liquidity and lack of credit risk that enables treasuries with maturities longer than t-bills to rally when stocks crash and rates fall.
Long rates are so low right now, in a crash, how much lower can they really go?
Well, the US 10 year is at, what, 2.9%? The UK gilt (govt bond) is at about 1.6% last time I checked, and the German bund was c 0.6%. Japanese 10 year was even lower (I haven't checked the current rates).

Answer: they can go really low. Down to effectively zero. In fact, the German 10 year was probably below 0% nominal yield at one point.
previous crashes in the early 70s were accompanied by higher inflation and rates. So it isn't necessarily a given that long bonds will rally in a crash.
? the Crash of 1987 was the biggest stockmarket crash (single day) since 1929. Treasuries rallied as the Fed cut rates.

The next biggest crash since 1929 was 2008. Then, again, Treasuries rallied. As they did during the bear market (no crash) of 2000-03, I believe.

There was a pretty bad bear market in 1973-74 (remembering from memory). That was associated with high inflation and the first Oil Crisis so I doubt bonds did well.
UpperNwGuy
Posts: 9446
Joined: Sun Oct 08, 2017 7:16 pm

Re: 1 year treasuries @ 2.4% instead of bond funds?

Post by UpperNwGuy »

Kevin M wrote: Sun Jul 29, 2018 6:42 pm Most Bogleheads won't worry about any of this, and will just stick with their intermediate-term bond funds.
Yep, that would be me.
Topic Author
johussman
Posts: 29
Joined: Sun Jul 29, 2018 4:18 pm

Re: 1 year treasuries @ 2.4% instead of bond funds?

Post by johussman »

Grt2bOutdoors wrote: Sun Jul 29, 2018 9:26 pm
johussman wrote: Sun Jul 29, 2018 7:57 pm
AHTFY wrote: Sun Jul 29, 2018 7:49 pm
johussman wrote: Sun Jul 29, 2018 7:10 pm if stocks crash the 1 year treasury will rally too (assuming the crash is before maturity).
If the stock market crashes and 30-year Treasury interest rates fall from 3% to 2% (this is purely hypothetical), 30-year Treasuries will rally about 22%. If the 1-year rate drops from 2.3% all the way to 0%, a 1-year Treasury will gain about 2%.

What if the 30 year goes to 5% after the crash due to higher inflation? It’s all market timing nobody knows what the 30 year will do
Don't bank on that. Did you see that happen in the last ten years after a severe crash?
How does the last 10 years have anything to do with the performance of the next 10 years?
Topic Author
johussman
Posts: 29
Joined: Sun Jul 29, 2018 4:18 pm

Re: 1 year treasuries @ 2.4% instead of bond funds?

Post by johussman »

previous crashes in the early 70s were accompanied by higher inflation and rates. So it isn't necessarily a given that long bonds will rally in a crash.
? the Crash of 1987 was the biggest stockmarket crash (single day) since 1929. Treasuries rallied as the Fed cut rates.
I said 70s, not 80s.

It sounds like you are trying to market time.
moehoward
Posts: 270
Joined: Mon Mar 05, 2018 9:16 am

Re: 1 year treasuries @ 2.4% instead of bond funds?

Post by moehoward »

I'm not quite ready to commit to a year but I have been doing repeating 4 week notes from Treasury Direct. About 1.8%, not bad.
MikeG62
Posts: 5054
Joined: Tue Nov 15, 2016 2:20 pm
Location: New Jersey

Re: 1 year treasuries @ 2.4% instead of bond funds?

Post by MikeG62 »

johussman wrote: Sun Jul 29, 2018 7:43 pm
MikeG62 wrote: Sun Jul 29, 2018 7:38 pm
johussman wrote: Sun Jul 29, 2018 4:31 pm
...It seems attractive right now to place 100% of bond investments into individually purchased tbills ranging from 6mo to 1year maturities. 0 risk of losing my money with a yield almost as good as BND. Plus the upside of being able to reinvest matured bonds back into tbills if short end rates keep going higher like this.

Am i missing something here or is it a no brainer to go with tbills?

First, BND has a current SEC yield of 3.13% (this is the yield over trailing 30 days).

Second, I do not think you should place 100% of your fixed income allocation into 1-year Treasuries. However, it would not be unreasonable to place most/all of your "short-term" fixed income allocation into them though. You can ladder the purchases too.

FWIW, I am doing this with my excess cash, except I am using 6-month Treasuries instead. This was cash formerly sitting in online savings accounts and no penalty CD's.
Why shouldn’t I put 100% of my fixed income into 1 year t-bills? Mind sharing an explanation.
Sorry John, just saw your comment.

Diversification is the reason. Not credit risk diversification (because the US Treasury is the gold standard worldwide in terms of creditworthiness), but diversification of interest rate risk.

For example, back in 2007 you could have bought a 10-year Treasury yielding over 5%. Those who employed your buy "only" 1-year Treasuries strategy in 2007 would have been at a significant disadvantage for the next decade relative to those who were willing to buy 10-year Treasuries at that time. After all, we all know how lousy interest rates were from 2008-2016. In addition, folks following a buy only 1-year Treasuries were reinvesting proceeds from their maturing bonds at successively lower and lower rates (not a pretty picture).

This is not to say you should put 100% of your fixed income allocation in 10-year Treasuries either. I would not touch them with rates where they are now - you can get within 20bps of the 10-year yield with 2-year Treasuries.

What I suggest is an allocation to fixed income with varying maturities. This way if interest rates do rise, you get to reinvest the proceeds of your maturing bonds at higher rates. As long as you are not selling long-dated bonds into the teeth of a rising rate environment, you are not realizing any short-term losses resulting from the drop in prices. [FWIW, I have never sold a bond before maturity (or it being called)]. However, if interest rates fall, at least you are not reinvesting 100% of your fixed income allocation at lower rates - as you still have some longer dated bonds paying you a higher yield.

Since no one knows what future interest rates are going to be, it makes sense to hold bonds of varying maturities. This is why I said the 1-year Treasuries were appropriate for the "short-term" portion of your fixed income allocation.
Real Knowledge Comes Only From Experience
Northern Flicker
Posts: 15288
Joined: Fri Apr 10, 2015 12:29 am

Re: 1 year treasuries @ 2.4% instead of bond funds?

Post by Northern Flicker »

Since 1928, there have been 3 years in which US stocks and the 10-year treasury both had negative returns. The bear market of 1973/74 was when stocks crashed during the inflation of the 1970's, but those were not the years.

1931, 1941, and 1969 were the years it happened. In 1931, US stocks were down sharply, with about a -44% return, and the 10-yr note had a return of -2.56%.

The problem in the 1970's was not negative nominal returns for nominal bonds, but negative real returns. T-bills were better but both t-bills and the 10-year treasury had negative real returns from 1967-1981. By 1986, the 10-year treasury had fully regained its lost ground vs t-bills.

http://pages.stern.nyu.edu/~adamodar/Ne ... retSP.html
Grt2bOutdoors
Posts: 25617
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: 1 year treasuries @ 2.4% instead of bond funds?

Post by Grt2bOutdoors »

johussman wrote: Mon Jul 30, 2018 7:38 am
Grt2bOutdoors wrote: Sun Jul 29, 2018 9:26 pm
johussman wrote: Sun Jul 29, 2018 7:57 pm
AHTFY wrote: Sun Jul 29, 2018 7:49 pm
johussman wrote: Sun Jul 29, 2018 7:10 pm if stocks crash the 1 year treasury will rally too (assuming the crash is before maturity).
If the stock market crashes and 30-year Treasury interest rates fall from 3% to 2% (this is purely hypothetical), 30-year Treasuries will rally about 22%. If the 1-year rate drops from 2.3% all the way to 0%, a 1-year Treasury will gain about 2%.

What if the 30 year goes to 5% after the crash due to higher inflation? It’s all market timing nobody knows what the 30 year will do
Don't bank on that. Did you see that happen in the last ten years after a severe crash?
How does the last 10 years have anything to do with the performance of the next 10 years?
It doesn’t or does it? The point is, don’t count on it. “What if” doesn’t mean “it will” lead to another situation or scenario.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Angst
Posts: 2968
Joined: Sat Jun 09, 2007 11:31 am

Re: 1 year treasuries @ 2.4% instead of bond funds?

Post by Angst »

I like your comment below:
MikeG62 wrote: Mon Jul 30, 2018 12:13 pmDiversification is the reason. Not credit risk diversification (because the US Treasury is the gold standard worldwide in terms of creditworthiness), but diversification of interest rate risk.
But perhaps, not your qualified conclusion:
MikeG62 wrote: Mon Jul 30, 2018 12:13 pmThis is not to say you should put 100% of your fixed income allocation in 10-year Treasuries either. I would not touch them with rates where they are now - you can get within 20bps of the 10-year yield with 2-year Treasuries.
I have no problem "touching" intermediate term rates. I'm inclined to think of what's been going on in the rest of the developed world:
Valuethinker wrote: Mon Jul 30, 2018 3:19 amWell, the US 10 year is at, what, 2.9%? The UK gilt (govt bond) is at about 1.6% last time I checked, and the German bund was c 0.6%. Japanese 10 year was even lower (I haven't checked the current rates).

Answer: they can go really low. Down to effectively zero. In fact, the German 10 year was probably below 0% nominal yield at one point.
I don't presume to know where rates are going, let alone where they likely will be going, but we (the US) are not an island unto ourselves, and I think developed international interest rates are an important frame of reference to help us consider where our rates might ultimately be going.
jacoavlu
Posts: 1006
Joined: Sun Jan 06, 2013 11:06 am

Re: 1 year treasuries @ 2.4% instead of bond funds?

Post by jacoavlu »

MikeG62 wrote: Mon Jul 30, 2018 12:13 pm What I suggest is an allocation to fixed income with varying maturities.
Isn’t that BND?
User avatar
CyberBob
Posts: 3387
Joined: Tue Feb 20, 2007 1:53 pm

Re: 1 year treasuries @ 2.4% instead of bond funds?

Post by CyberBob »

It’s interesting to note that William Bengen, who started all of the 4% safe-withdrawal research said that the safe withdrawal numbers didn't change if you replaced bonds with cash (1 year T-bills).
Startled Cat
Posts: 709
Joined: Thu Apr 03, 2008 8:54 pm

Re: 1 year treasuries @ 2.4% instead of bond funds?

Post by Startled Cat »

Has anyone noticed how short-term muni funds are pretty uncompetitive with treasuries right now?

For example SUB (iShares Short-Term National Muni) has a SEC yield of 1.66%, and duration of 2.05 years. TEY in the 38.8% / 10.3% tax brackets is 2.92%.

VGSH (Vanguard Short-Term Treasury) has a SEC yield of 2.53%, and a duration of 1.9 years. TEY in those same brackets is 3.04%.

Both funds have the same expense ratio of 0.07%.

I would have expected muni bonds to trade at an after-tax yield premium to treasuries because of credit quality (though I believe many of the bonds in SUB would be rated higher than the federal government by S&P, so this point is debatable).

I guess munis might make sense in states with low income tax or without any state income tax, but they still seem pretty marginal.

Don't even get me started about muni money market funds...
User avatar
Kevin M
Posts: 15750
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: 1 year treasuries @ 2.4% instead of bond funds?

Post by Kevin M »

aaronl wrote: Tue Jul 31, 2018 2:15 am Has anyone noticed how short-term muni funds are pretty uncompetitive with treasuries right now?
Just looking at Fidelity's Yield summary page, Treasury TEY beats AA muni TEY out to 3-year maturity for me at 27% and 8% marginal tax rates.

Kevin
If I make a calculation error, #Cruncher probably will let me know.
TBillT
Posts: 1001
Joined: Sat Sep 17, 2011 1:43 pm

Re: 1 year treasuries @ 2.4% instead of bond funds?

Post by TBillT »

johussman wrote: Sun Jul 29, 2018 7:57 pm
AHTFY wrote: Sun Jul 29, 2018 7:49 pm
johussman wrote: Sun Jul 29, 2018 7:10 pm if stocks crash the 1 year treasury will rally too (assuming the crash is before maturity).
If the stock market crashes and 30-year Treasury interest rates fall from 3% to 2% (this is purely hypothetical), 30-year Treasuries will rally about 22%. If the 1-year rate drops from 2.3% all the way to 0%, a 1-year Treasury will gain about 2%.

What if the 30 year goes to 5% after the crash due to higher inflation? It’s all market timing nobody knows what the 30 year will do
Yes but I do not listen to bond-skeptics on Bogleheads to set my bond strategy.
I listen to A. Gary Shilling who is a bond saint and economist and money manager usually correct about investment approach for the long term.

Having said that, I am not quite sure what Shilling is thinking lately...but he has been long cash and almost always at least a little long on the 30-yr. Certainly I am putting my cash into things like MMF and CD's and I like your idea of 1-yr Treasury which I can easily do at Fidelity. And generally I am too conservative (scardy cat) to pursue long term bonds, but I do dabble and have some longer term corporates.
Post Reply