10 Year Treasury Under 2%

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
Topic Author
aristotelian
Posts: 5930
Joined: Wed Jan 11, 2017 8:05 pm

10 Year Treasury Under 2%

Post by aristotelian » Wed Jun 26, 2019 12:39 pm

The 10 Year was briefly under 2% yesterday, the lowest I've seen in a while. The 10 Year only briefly went lower in the aftermath of the financial crisis. Just 7 months ago, I was able to buy a 5 year CD yielding over 3.5%, now I am seeing 2.3%. It would seem that bond prices are close to an all time high, at levels one might expect in the midst of an economic crisis, yet unemployment is low and the economy appears strong by most measures. Can anyone explain what institutional or individual investors are thinking buying at the intermediate to long end of the yield curve right now? What has happened in the economic landscape last 7 months that is so different?

HEDGEFUNDIE
Posts: 3105
Joined: Sun Oct 22, 2017 2:06 pm

Re: 10 Year Treasury Under 2%

Post by HEDGEFUNDIE » Wed Jun 26, 2019 12:56 pm

They have been convinced by my and vineviz's posts of course!

Seasonal
Posts: 396
Joined: Sun May 21, 2017 1:49 pm

Re: 10 Year Treasury Under 2%

Post by Seasonal » Wed Jun 26, 2019 12:59 pm

Investors are thinking the economy is less strong than you appear to believe.

Whether stock or bond investors are better at judging the future is a perpetual question. It's possible stocks are high because low rates overcome concerns about the economy (lower rates increase the present value of future cash flows).
Last edited by Seasonal on Wed Jun 26, 2019 1:01 pm, edited 1 time in total.

WhiteMaxima
Posts: 1930
Joined: Thu May 19, 2016 5:04 pm

Re: 10 Year Treasury Under 2%

Post by WhiteMaxima » Wed Jun 26, 2019 1:01 pm

What does this tell us?

anon_investor
Posts: 220
Joined: Mon Jun 03, 2019 1:43 pm

Re: 10 Year Treasury Under 2%

Post by anon_investor » Wed Jun 26, 2019 1:04 pm

WhiteMaxima wrote:
Wed Jun 26, 2019 1:01 pm
What does this tell us?
Maybe don't buy 10 year treasuries right now?

Topic Author
aristotelian
Posts: 5930
Joined: Wed Jan 11, 2017 8:05 pm

Re: 10 Year Treasury Under 2%

Post by aristotelian » Wed Jun 26, 2019 1:07 pm

WhiteMaxima wrote:
Wed Jun 26, 2019 1:01 pm
What does this tell us?
That's my question!

Angst
Posts: 2026
Joined: Sat Jun 09, 2007 11:31 am

Re: 10 Year Treasury Under 2%

Post by Angst » Wed Jun 26, 2019 1:08 pm

In 2016 (except for the full months of January and December) the 10-yr Treasury yield curve rate was under 2.00% the entire year.
https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yieldYear&year=2016

User avatar
dodecahedron
Posts: 4470
Joined: Tue Nov 12, 2013 12:28 pm

Re: 10 Year Treasury Under 2%

Post by dodecahedron » Wed Jun 26, 2019 1:08 pm

WhiteMaxima wrote:
Wed Jun 26, 2019 1:01 pm
What does this tell us?
It tells me to be pleased (for now) to have a good chunk of my fixed income allocation in TIAA Trad with 3% minimum floor. I say ¨for now¨ because who knows how long this is sustainable for TIAA without threatening their high credit rating. Glad to have it all in fully liquid form rather than the slightly higher illiquid forms with 9 year exit clock.

Also puts Ally´s decision to lower money market account rate from 2.2% to 2.1% into perspective.

Topic Author
aristotelian
Posts: 5930
Joined: Wed Jan 11, 2017 8:05 pm

Re: 10 Year Treasury Under 2%

Post by aristotelian » Wed Jun 26, 2019 1:12 pm

Angst wrote:
Wed Jun 26, 2019 1:08 pm
In 2016 (except for the full months of January and December) the 10-yr Treasury yield curve rate was under 2.00% the entire year.
https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yieldYear&year=2016
Thanks, for some reason that was not evident in the chart I looked at and my memory is short!

fanmail
Posts: 319
Joined: Thu Sep 20, 2012 5:54 pm

Re: 10 Year Treasury Under 2%

Post by fanmail » Wed Jun 26, 2019 1:16 pm

The low yield was about 1.37% in 2016 as angst's link indicated. Speculation of fed rate cuts has pushed all treasury yields lower. Actionable, maybe. Rebalance out of fixed into stocks. Stocks are near all time highs, so rebalancing bands are probably not getting hit.

FootballFan5548
Posts: 220
Joined: Mon May 01, 2017 2:20 pm

Re: 10 Year Treasury Under 2%

Post by FootballFan5548 » Wed Jun 26, 2019 1:34 pm

Where are people supposed to go for yield? Bonds are offering a pittance, and stocks are at historic highs... money markets are offering very little, 2% if you're lucky.

I'm not sure where to put new money, so I'm just keeping on keeping on

tindel
Posts: 149
Joined: Sun Nov 12, 2017 10:06 am

Re: 10 Year Treasury Under 2%

Post by tindel » Wed Jun 26, 2019 1:47 pm

WhiteMaxima wrote:
Wed Jun 26, 2019 1:01 pm
What does this tell us?
It tells us that longer-term bond buyers believe that shorter-term bond rates will fall.
It tells us that shorter-term bond buyers believe that longer-term bond rates will rise.

Who's right? My crystal ball is broke.

The yield curve is somewhat inverted, signaling that a potential recession may be coming. The classic yield inversion measure is the 10-year/2-year, which I haven't noticed inverted yet, but I don't watch every day. Are we heading to a recession? Unquestionably, yes. 'When?' is a better question. This month, next year, or a decade from now? Are we already in a recession and we don't already know it?
Again, my crystal ball is broke. I just hope (as always) that it's not real bad and that we recover quickly.

Bond funds are at all time highs because interest rates are falling. The classic inverse relationship. Stocks are also near all-time highs. All this means is that everybody has money! :moneybag :moneybag :moneybag

robertmcd
Posts: 457
Joined: Tue Aug 09, 2016 9:06 am

Re: 10 Year Treasury Under 2%

Post by robertmcd » Wed Jun 26, 2019 2:27 pm

Another reason why a ladder of add on CD's can be extremely useful. I have 12 months left on a 3.15% add on CD that I opened with only $500. I also have about 4 yrs left on a 3% CD I opened with $500 that I can add to. The minimum deposit is great insurance against falling rates. $500 effectively buys you an option to get that rate in the future for hundreds of thousands of dollars. Hard to beat that.

MotoTrojan
Posts: 5522
Joined: Wed Feb 01, 2017 8:39 pm

Re: 10 Year Treasury Under 2%

Post by MotoTrojan » Wed Jun 26, 2019 2:31 pm

HEDGEFUNDIE wrote:
Wed Jun 26, 2019 12:56 pm
They have been convinced by my and vineviz's posts of course!
So what does this mean if we have another major equity distress? Have your posts run up the prices enough that the uncorrelation will fail?

MotoTrojan
Posts: 5522
Joined: Wed Feb 01, 2017 8:39 pm

Re: 10 Year Treasury Under 2%

Post by MotoTrojan » Wed Jun 26, 2019 2:33 pm

anon_investor wrote:
Wed Jun 26, 2019 1:04 pm
WhiteMaxima wrote:
Wed Jun 26, 2019 1:01 pm
What does this tell us?
Maybe don't buy 10 year treasuries right now?
Timing the bond market is no different than timing the equity market. If you think we shouldn't buy bonds at a recent/all-time low in yields, then one shouldn't buy equity at a recent/all-time high.

User avatar
Sandtrap
Posts: 8039
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii No Ka Oi , N. Arizona

Re: 10 Year Treasury Under 2%

Post by Sandtrap » Wed Jun 26, 2019 2:34 pm

So, with bond prices at an all time high . . . yields low. . . .

. . . that means that selling bond funds and moving into other diversification of fixed, IE: treasuries, munis, CD ladders, etc, is a viable option?. .

. . . or does it mean something else?

j :D
Wiki Bogleheads Wiki: Everything You Need to Know

SovereignInvestor
Posts: 378
Joined: Mon Aug 20, 2018 4:41 pm

Re: 10 Year Treasury Under 2%

Post by SovereignInvestor » Wed Jun 26, 2019 2:47 pm

Expection theory of interest rates says the 10Y yield reflects average yield expected for short term borrowers over next 10 years.

Inflation expectations have plunged and economic forecasts have as well.

More.importantly the market is pricing in 3 rate cuts this year based on fed fund futures prices and if the fed funds rate dropped to 1.5%, as the market currently prices, then the 10Y well over 2% appears attractive. That likely explains a lot of rampant buying this year when 10Y was 2.5%, that appears very attractive if short term rates were to go back to anywhere near crisis levels so investors are.locking in the yield by bidding up.longer duration Treasurys.

We would need a pickup in growth or.inflation expectations to make yields rise again.

User avatar
patrick013
Posts: 2662
Joined: Mon Jul 13, 2015 7:49 pm

Re: 10 Year Treasury Under 2%

Post by patrick013 » Wed Jun 26, 2019 3:03 pm

I'm going to say bonds are overbought. The stock market is sensitive to rates and wants to think that lower rates are needed for stability. So bonds are bought at low rates as the stock market shows it's weakness or strength at lower rates. But the weakness is there.

Another group says the overall economy is good. No flight to quality needed. They're not concurring with those that say the economy is collapsing. So time will tell. A third group is going to LC quality or value anyway. Concerned about a large drawdown.

Need to watch EPS again. If it goes down $5 instead of up the apparent inversion should continue. Right now affecting 1 to 10 year TRSY's below 2% yield where the upward market slope usually is and long term is downward.

Still can get 1 to 3 year CD's at 2.9% maybe higher. Nobody has it all figured out. Low rates are low rates no doubt.
age in bonds, buy-and-hold, 10 year business cycle

MotoTrojan
Posts: 5522
Joined: Wed Feb 01, 2017 8:39 pm

Re: 10 Year Treasury Under 2%

Post by MotoTrojan » Wed Jun 26, 2019 3:07 pm

SovereignInvestor wrote:
Wed Jun 26, 2019 2:47 pm
Expection theory of interest rates says the 10Y yield reflects average yield expected for short term borrowers over next 10 years.

While this is a good summary, wouldn't the current 10Y yield reflect the average expected yield moving forward, plus a term premium?

User avatar
Kevin M
Posts: 10923
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: 10 Year Treasury Under 2%

Post by Kevin M » Wed Jun 26, 2019 3:44 pm

Image

Not only are we not at a historical low, but the recent decline in 10y yield doesn't look like anything particularly special since 1/1/2008 (I go back that far because it was mentioned in the OP).

Note that the yield actually did not drop below 2% in the late 2008 crisis, but it has been below it for quite a few months at various time since then--more than a couple of years in total.

Kevin
Wiki ||.......|| Suggested format for Asking Portfolio Questions (edit original post)

User avatar
Kevin M
Posts: 10923
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: 10 Year Treasury Under 2%

Post by Kevin M » Wed Jun 26, 2019 3:45 pm

MotoTrojan wrote:
Wed Jun 26, 2019 3:07 pm
SovereignInvestor wrote:
Wed Jun 26, 2019 2:47 pm
Expection theory of interest rates says the 10Y yield reflects average yield expected for short term borrowers over next 10 years.
While this is a good summary, wouldn't the current 10Y yield reflect the average expected yield moving forward, plus a term premium?
Yes, but two prominent Fed models indicated that the term premium is negative!

Kevin
Wiki ||.......|| Suggested format for Asking Portfolio Questions (edit original post)

robertmcd
Posts: 457
Joined: Tue Aug 09, 2016 9:06 am

Re: 10 Year Treasury Under 2%

Post by robertmcd » Wed Jun 26, 2019 4:12 pm

Kevin M wrote:
Wed Jun 26, 2019 3:44 pm
Image

Not only are we not at a historical low, but the recent decline in 10y yield doesn't look like anything particularly special since 1/1/2008 (I go back that far because it was mentioned in the OP).

Note that the yield actually did not drop below 2% in the late 2008 crisis, but it has been below it for quite a few months at various time since then--more than a couple of years in total.

Kevin
This. I am not going to worry about my long bond exposure until we hit new historical lows in yields across the board.

User avatar
Kevin M
Posts: 10923
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: 10 Year Treasury Under 2%

Post by Kevin M » Wed Jun 26, 2019 7:27 pm

aristotelian wrote:
Wed Jun 26, 2019 12:39 pm
The 10 Year was briefly under 2% yesterday, the lowest I've seen in a while. The 10 Year only briefly went lower in the aftermath of the financial crisis. <snip> It would seem that bond prices are close to an all time high, at levels one might expect in the midst of an economic crisis, <snip>
As a follow up to the chart I posted, here are some statistics. Since 12/1/2008 (chosen because it's the beginning of the month when the 10y yield hit it's low of 2.08% on 12/18/2008, during the financial crisis):
  • Yields are available from treasury.gov for 2,645 days (not including days with N/A or 0 yields).
  • Yield was less than 2% on 563 of those days.
  • So yield was below 2% on 21.3%, or more than 1/5 of those days. Not only did none of those sub-2% yields occur during a financial crisis, none of them even occurred during a recession.
  • Minimum yield was 1.37%, on 7/5 and 7/8/2016.
  • Yield was below 1.5% on 8 days in 2012 and on 13 days in 2016.
  • Average yield for the entire period is 2.52%.
  • Yield first dropped below 2% on 9/6/2011. Since then, the average yield is 2.28%
  • At 2.05%, yield today is only 23 basis points below the average since 9/6/2011.
What is of note about yield changes since 2008 is the flattening and most recently inversion of much of the yield curve. Here's a chart of the 10y minus 1m since 12/1/2008:

Image

Kevin
Wiki ||.......|| Suggested format for Asking Portfolio Questions (edit original post)

SovereignInvestor
Posts: 378
Joined: Mon Aug 20, 2018 4:41 pm

Re: 10 Year Treasury Under 2%

Post by SovereignInvestor » Wed Jun 26, 2019 7:43 pm

Thanks for the great stats on the 10Y.

The 2-10 spread already bottomed months ago and has actually been widening a bit. They say the 2Y is more responsive to fed policy and the market started pricing in rate cuts pretty quickly it seems.

the 2-10 never inverted yet.

feh
Posts: 1322
Joined: Sat Dec 15, 2012 11:39 am

Re: 10 Year Treasury Under 2%

Post by feh » Thu Jun 27, 2019 12:00 pm

SovereignInvestor wrote:
Wed Jun 26, 2019 7:43 pm
Thanks for the great stats on the 10Y.

The 2-10 spread already bottomed months ago and has actually been widening a bit. They say the 2Y is more responsive to fed policy and the market started pricing in rate cuts pretty quickly it seems.

the 2-10 never inverted yet.
10 yr minus 3 month has been negative for over a month now.

What does that indicate? I'm not gonna speculate...

SovereignInvestor
Posts: 378
Joined: Mon Aug 20, 2018 4:41 pm

Re: 10 Year Treasury Under 2%

Post by SovereignInvestor » Thu Jun 27, 2019 12:08 pm

It seems to indicate the market is expecting a rate cut.

If you look at fed fund futures..they are priced that it implies a 100% chance of July rate cut and a 28% chance the cut is 50bps.

https://www.cmegroup.com/trading/intere ... -fomc.html

As a result some analysts have a rule that when the market prices something in more than 50%, the Fed has followed it....every time since 1994. Every rate hike since 2015, the day of the meeting the market had it priced in more than 50%.

This is not adding speculation about fed policy this is just observation of how the market is prices the uncertainty in.

User avatar
Kevin M
Posts: 10923
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: 10 Year Treasury Under 2%

Post by Kevin M » Thu Jun 27, 2019 1:25 pm

SovereignInvestor wrote:
Wed Jun 26, 2019 7:43 pm
Thanks for the great stats on the 10Y.
You're welcome!
SovereignInvestor wrote:
Wed Jun 26, 2019 7:43 pm
The 2-10 spread already bottomed months ago and has actually been widening a bit. They say the 2Y is more responsive to fed policy and the market started pricing in rate cuts pretty quickly it seems.

the 2-10 never inverted yet.
If by Fed policy you mean the federal funds rate (FFR), we can show that the shorter-term Treasuries are "more responsive" to Fed policy:

Image

The 1-month only goes back to July 2001, but the 3m goes back to Jan 1982, so I included that as well. We see a lot more daylight between the FFR and the 2y than between the FFR and the 3m or 1m. Since 1990, the FFR and 3m look like one line most of the time, and the 1m joins that party in July 2001.

I think the reason people focus on the 10y-2y is because it has been a slightly more reliable leading indicator of recessions, but maybe also because there's more history for the 2y than for the 3m or 1m--at least at FRED; Shiller data could be used to go back further for 10y minus 1m.

Image

The main point of the chart in the earlier reply was to show the general flattening of the yield curve since the financial crisis. We see the basically the same thing looking at the 10y-2y, but as you say, it has not actually inverted yet.

Image

Kevin
Wiki ||.......|| Suggested format for Asking Portfolio Questions (edit original post)

User avatar
Kevin M
Posts: 10923
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: 10 Year Treasury Under 2%

Post by Kevin M » Thu Jun 27, 2019 2:31 pm

feh wrote:
Thu Jun 27, 2019 12:00 pm
10 yr minus 3 month has been negative for over a month now.

What does that indicate? I'm not gonna speculate...
SovereignInvestor wrote:
Thu Jun 27, 2019 12:08 pm
It seems to indicate the market is expecting a rate cut.
The drop in the short-term Treasury yields indicates market's expectation of a cut in the fed funds rate (FFR). We've seen how closely the 1m and 3m Treasuries track the FFR.

Yield curve inversion of the 10y relative to 3m indicates a combination of the market's expectations that average 3m yields over the next 10 years relative to the 10y yield will be higher than previously, and a reduction in the 10y term premium. Neither of these is directly observable, so we don't really know for sure how much of each is at play.

The ACM term premium model puts the 10y term premium at -0.87% as of 6/25/2019, down from -0.59% on 12/31/2018.

We should take these models with a big grain of salt, but a negative term premium indicates that rolling 1m Treasuries for 10 years is expected to return more than holding a 10y Treasury to maturity--according to the ACM model, 0.87% more annualized.

In other words, the model indicates that the 1m yield is expected to increase enough over the next 10 years to earn an average return of 2.87%, while the 10y bought on 6/25 held to maturity earns 2.00%. This isn't exactly correct, since the model is based on zero coupon yields, but the model 10y yield on 6/25 was 2.01%, so it's not that far off. A zero coupon bond has no reinvestment risk, so will earn the original yield if held to maturity.

Kevin
Wiki ||.......|| Suggested format for Asking Portfolio Questions (edit original post)

likashing
Posts: 161
Joined: Tue Mar 06, 2007 7:58 pm

Re: 10 Year Treasury Under 2%

Post by likashing » Fri Jun 28, 2019 5:31 am

Kevin M wrote:
Thu Jun 27, 2019 2:31 pm
feh wrote:
Thu Jun 27, 2019 12:00 pm
10 yr minus 3 month has been negative for over a month now.

What does that indicate? I'm not gonna speculate...
SovereignInvestor wrote:
Thu Jun 27, 2019 12:08 pm
It seems to indicate the market is expecting a rate cut.
The drop in the short-term Treasury yields indicates market's expectation of a cut in the fed funds rate (FFR). We've seen how closely the 1m and 3m Treasuries track the FFR.

Yield curve inversion of the 10y relative to 3m indicates a combination of the market's expectations that average 3m yields over the next 10 years relative to the 10y yield will be higher than previously, and a reduction in the 10y term premium. Neither of these is directly observable, so we don't really know for sure how much of each is at play.

The ACM term premium model puts the 10y term premium at -0.87% as of 6/25/2019, down from -0.59% on 12/31/2018.

We should take these models with a big grain of salt, but a negative term premium indicates that rolling 1m Treasuries for 10 years is expected to return more than holding a 10y Treasury to maturity--according to the ACM model, 0.87% more annualized.

In other words, the model indicates that the 1m yield is expected to increase enough over the next 10 years to earn an average return of 2.87%, while the 10y bought on 6/25 held to maturity earns 2.00%. This isn't exactly correct, since the model is based on zero coupon yields, but the model 10y yield on 6/25 was 2.01%, so it's not that far off. A zero coupon bond has no reinvestment risk, so will earn the original yield if held to maturity.

Kevin
Kevin, I have so much IRA CD maturing lately and soon. What have you been doing in the current environment, if you don't mind sharing? The brokered CDs do not look as attractive as last year. Thanks in advance!

fennewaldaj
Posts: 771
Joined: Sun Oct 22, 2017 11:30 pm

Re: 10 Year Treasury Under 2%

Post by fennewaldaj » Fri Jun 28, 2019 6:27 am

SovereignInvestor wrote:
Thu Jun 27, 2019 12:08 pm

If you look at fed fund futures..they are priced that it implies a 100% chance of July rate cut and a 28% chance the cut is 50bps.
and of course it is impossible that the chance of a rate cut is 100%.

Virus4762
Posts: 100
Joined: Fri Jul 13, 2012 10:53 am

Re: 10 Year Treasury Under 2%

Post by Virus4762 » Fri Jun 28, 2019 9:00 am

tindel wrote:
Wed Jun 26, 2019 1:47 pm
WhiteMaxima wrote:
Wed Jun 26, 2019 1:01 pm
What does this tell us?
It tells us that longer-term bond buyers believe that shorter-term bond rates will fall.
It tells us that shorter-term bond buyers believe that longer-term bond rates will rise.

If longer-term bond buyers were eschewing shorter-term bonds wouldn't it be because they think shorter-term bond rates would rise (leading to a shorter-term bond sell-off)?
Last edited by Virus4762 on Fri Jun 28, 2019 9:20 am, edited 1 time in total.

Virus4762
Posts: 100
Joined: Fri Jul 13, 2012 10:53 am

Re: 10 Year Treasury Under 2%

Post by Virus4762 » Fri Jun 28, 2019 9:02 am

MotoTrojan wrote:
Wed Jun 26, 2019 2:33 pm
anon_investor wrote:
Wed Jun 26, 2019 1:04 pm
WhiteMaxima wrote:
Wed Jun 26, 2019 1:01 pm
What does this tell us?
Maybe don't buy 10 year treasuries right now?
Timing the bond market is no different than timing the equity market. If you think we shouldn't buy bonds at a recent/all-time low in yields, then one shouldn't buy equity at a recent/all-time high.
Except there's a floor for bond yields and no ceiling for equities

MotoTrojan
Posts: 5522
Joined: Wed Feb 01, 2017 8:39 pm

Re: 10 Year Treasury Under 2%

Post by MotoTrojan » Fri Jun 28, 2019 11:06 am

Virus4762 wrote:
Fri Jun 28, 2019 9:02 am
MotoTrojan wrote:
Wed Jun 26, 2019 2:33 pm
anon_investor wrote:
Wed Jun 26, 2019 1:04 pm
WhiteMaxima wrote:
Wed Jun 26, 2019 1:01 pm
What does this tell us?
Maybe don't buy 10 year treasuries right now?
Timing the bond market is no different than timing the equity market. If you think we shouldn't buy bonds at a recent/all-time low in yields, then one shouldn't buy equity at a recent/all-time high.
Except there's a floor for bond yields and no ceiling for equities
What is this floor you speak of? Negative rates are a thing of reality in many major countries. If it was more likely that rates would go up then rates would already have moved up.

fsrph
Posts: 1058
Joined: Sun Jul 26, 2009 7:54 pm
Location: Pa.

Re: 10 Year Treasury Under 2%

Post by fsrph » Fri Jun 28, 2019 11:34 am

robertmcd wrote:
Wed Jun 26, 2019 2:27 pm
Another reason why a ladder of add on CD's can be extremely useful. I have 12 months left on a 3.15% add on CD that I opened with only $500. I also have about 4 yrs left on a 3% CD I opened with $500 that I can add to. The minimum deposit is great insurance against falling rates. $500 effectively buys you an option to get that rate in the future for hundreds of thousands of dollars. Hard to beat that.
I did almost the same thing about 6 months ago. Picked up a 3,4 and 5 year CD with unlimited add on. Put in the minimum $500 and the rates were 3 - 3.25%. Of course I didn't know rates would fall but it seemed like an easy, cheap way to lock in rates.

Francis
"Success is getting what you want. Happiness is wanting what you get." | Dale Carnegie

mrmass
Posts: 234
Joined: Thu Jul 26, 2018 6:35 pm

Re: 10 Year Treasury Under 2%

Post by mrmass » Fri Jun 28, 2019 12:32 pm

It's likely good for REITS

Topic Author
aristotelian
Posts: 5930
Joined: Wed Jan 11, 2017 8:05 pm

Re: 10 Year Treasury Under 2%

Post by aristotelian » Fri Jun 28, 2019 2:09 pm

fsrph wrote:
Fri Jun 28, 2019 11:34 am
robertmcd wrote:
Wed Jun 26, 2019 2:27 pm
Another reason why a ladder of add on CD's can be extremely useful. I have 12 months left on a 3.15% add on CD that I opened with only $500. I also have about 4 yrs left on a 3% CD I opened with $500 that I can add to. The minimum deposit is great insurance against falling rates. $500 effectively buys you an option to get that rate in the future for hundreds of thousands of dollars. Hard to beat that.
I did almost the same thing about 6 months ago. Picked up a 3,4 and 5 year CD with unlimited add on. Put in the minimum $500 and the rates were 3 - 3.25%. Of course I didn't know rates would fall but it seemed like an easy, cheap way to lock in rates.

Francis
Where do you guys purchase these?

robertmcd
Posts: 457
Joined: Tue Aug 09, 2016 9:06 am

Re: 10 Year Treasury Under 2%

Post by robertmcd » Fri Jun 28, 2019 2:19 pm

depositaccounts.com is the best resource for CD deals.

One of mine was a united bank 19 mo add on CD

The 5 yr 3.00% add on CD is still available at GTE financial

User avatar
Kevin M
Posts: 10923
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: 10 Year Treasury Under 2%

Post by Kevin M » Fri Jun 28, 2019 3:37 pm

likashing wrote:
Fri Jun 28, 2019 5:31 am
Kevin, I have so much IRA CD maturing lately and soon. What have you been doing in the current environment, if you don't mind sharing? The brokered CDs do not look as attractive as last year. Thanks in advance!
Right, brokered CD yields have dropped a lot just in the last few weeks.

It depends on the situation.

If at a bank or CU with decent short-term CD yields, I've rolled into the short term CD. Most recently I rolled into a Synchrony Bank 1-year IRA CD at 2.60% APY (I see that that rate still is available), which is quite good considering that the Vanguard 1-year brokered CD yield is 2.00% now, and even the 5-year is only 2.30%.

If at a bank or CU with no decent CD yields, I'll probably transfer to my Vanguard IRA, and either just hold it in Prime MM for now, or perhaps put some or all of it into something like short-term corporate (VSCSX), taking a bit of credit risk to boost yield; SEC yield now 2.63% on this fund. Duration of this fund is 3.0 2.5 years (average maturity is 3.0 years). I have a Patelco CU CD maturing next month and one in August, and that's the plan for these unless they happen to offer something much better than they're offering now.

Another short-term alternative to consider might be Vanguard ultra-short term bond (VUSFX) at 2.56% SEC yield and 1.0 0.9 year duration (average maturity is 1.0 years). I had a bad experience with a Schwab ultra-short term bond fund in 2007 or 2008, although I got out before most of the damage was done, so I'd want to look carefully at the holdings of the fund first. I do think this is worth looking at.

I was doing most of my IRA transfers to Fidelity over the last year or two, since I was finding better secondary brokered CDs there, but now that brokered CDs are off the table for me, I think I prefer Vanguard for its broader selection of lower cost money market and bond funds.

Of course most Bogleheads will just stick with their intermediate-term bond fund, whether it's Total Bond or something else. I have a friend for whom simplification is more important than it is for me, so I'm helping him do a transfer from a PenFed IRA CD to his intermediate-term investment-grade bond fund at Vanguard.

Another alternative for PenFed IRA CDs if age 59 1/2 or older is to just put it into the 7-year CD at 2.40% (or whatever it is), with the intention of doing a partial rollover if/when a more attractive rate becomes available. You can do a penalty free withdrawal of all but $1,000 into your PenFed IRA savings account, then do an ACH transfer into Vanguard as a rollover (initiated from Vanguard). Of course you can only do one rollover each year. Some have reported being able to do a penalty-free IRA transfer from PenFed, but PenFed was very adamant with me that they do not allow this, and this was in writing.

I'm not too interested in opening more bank or CU accounts, as I already have quite a few, so I probably won't be doing IRA transfers to a new bank or CU. For those who are into it, I'd be scouring depositaccounts.com for the best CD deals.

Kevin
Wiki ||.......|| Suggested format for Asking Portfolio Questions (edit original post)

likashing
Posts: 161
Joined: Tue Mar 06, 2007 7:58 pm

Re: 10 Year Treasury Under 2%

Post by likashing » Fri Jun 28, 2019 5:56 pm

Kevin M wrote:
Fri Jun 28, 2019 3:37 pm
likashing wrote:
Fri Jun 28, 2019 5:31 am
Kevin, I have so much IRA CD maturing lately and soon. What have you been doing in the current environment, if you don't mind sharing? The brokered CDs do not look as attractive as last year. Thanks in advance!
Right, brokered CD yields have dropped a lot just in the last few weeks.

It depends on the situation.

If at a bank or CU with decent short-term CD yields, I've rolled into the short term CD. Most recently I rolled into a Synchrony Bank 1-year IRA CD at 2.60% APY (I see that that rate still is available), which is quite good considering that the Vanguard 1-year brokered CD yield is 2.00% now, and even the 5-year is only 2.30%.

If at a bank or CU with no decent CD yields, I'll probably transfer to my Vanguard IRA, and either just hold it in Prime MM for now, or perhaps put some or all of it into something like short-term corporate (VSCSX), taking a bit of credit risk to boost yield; SEC yield now 2.63% on this fund. Duration of this fund is 3.0 2.5 years (average maturity is 3.0 years). I have a Patelco CU CD maturing next month and one in August, and that's the plan for these unless they happen to offer something much better than they're offering now.

Another short-term alternative to consider might be Vanguard ultra-short term bond (VUSFX) at 2.56% SEC yield and 1.0 0.9 year duration (average maturity is 1.0 years). I had a bad experience with a Schwab ultra-short term bond fund in 2007 or 2008, although I got out before most of the damage was done, so I'd want to look carefully at the holdings of the fund first. I do think this is worth looking at.

I was doing most of my IRA transfers to Fidelity over the last year or two, since I was finding better secondary brokered CDs there, but now that brokered CDs are off the table for me, I think I prefer Vanguard for its broader selection of lower cost money market and bond funds.

Of course most Bogleheads will just stick with their intermediate-term bond fund, whether it's Total Bond or something else. I have a friend for whom simplification is more important than it is for me, so I'm helping him do a transfer from a PenFed IRA CD to his intermediate-term investment-grade bond fund at Vanguard.

Another alternative for PenFed IRA CDs if age 59 1/2 or older is to just put it into the 7-year CD at 2.40% (or whatever it is), with the intention of doing a partial rollover if/when a more attractive rate becomes available. You can do a penalty free withdrawal of all but $1,000 into your PenFed IRA savings account, then do an ACH transfer into Vanguard as a rollover (initiated from Vanguard). Of course you can only do one rollover each year. Some have reported being able to do a penalty-free IRA transfer from PenFed, but PenFed was very adamant with me that they do not allow this, and this was in writing.

I'm not too interested in opening more bank or CU accounts, as I already have quite a few, so I probably won't be doing IRA transfers to a new bank or CU. For those who are into it, I'd be scouring depositaccounts.com for the best CD deals.

Kevin
Thanks Kevin!!!

tindel
Posts: 149
Joined: Sun Nov 12, 2017 10:06 am

Re: 10 Year Treasury Under 2%

Post by tindel » Sat Jun 29, 2019 12:24 am

Virus4762 wrote:
Fri Jun 28, 2019 9:00 am
tindel wrote:
Wed Jun 26, 2019 1:47 pm
WhiteMaxima wrote:
Wed Jun 26, 2019 1:01 pm
What does this tell us?
It tells us that longer-term bond buyers believe that shorter-term bond rates will fall.
It tells us that shorter-term bond buyers believe that longer-term bond rates will rise.

If longer-term bond buyers were eschewing shorter-term bonds wouldn't it be because they think shorter-term bond rates would rise (leading to a shorter-term bond sell-off)?
On the contrary. Long bond buyers believe the yield of thier longer bond will outperform short bonds over the length of their bond. As such, they believe short bond rates will fall.

fsrph
Posts: 1058
Joined: Sun Jul 26, 2009 7:54 pm
Location: Pa.

Re: 10 Year Treasury Under 2%

Post by fsrph » Wed Jul 03, 2019 9:39 pm

aristotelian wrote:
Fri Jun 28, 2019 2:09 pm
fsrph wrote:
Fri Jun 28, 2019 11:34 am
robertmcd wrote:
Wed Jun 26, 2019 2:27 pm
Another reason why a ladder of add on CD's can be extremely useful. I have 12 months left on a 3.15% add on CD that I opened with only $500. I also have about 4 yrs left on a 3% CD I opened with $500 that I can add to. The minimum deposit is great insurance against falling rates. $500 effectively buys you an option to get that rate in the future for hundreds of thousands of dollars. Hard to beat that.
I did almost the same thing about 6 months ago. Picked up a 3,4 and 5 year CD with unlimited add on. Put in the minimum $500 and the rates were 3 - 3.25%. Of course I didn't know rates would fall but it seemed like an easy, cheap way to lock in rates.

Francis
Where do you guys purchase these?
I opened mine with Freedom Credit Union in Pennsylvania. The rates are not the same now but, more importantly, you need to reside in a certain geographical region of Pennsylvania to qualify for membership. If you look at their rate page you won't see a specific add on CD, rather all of their CD's qualify for adding to them anytime.
https://www.freedomcu.org/

Francis
"Success is getting what you want. Happiness is wanting what you get." | Dale Carnegie

User avatar
Kevin M
Posts: 10923
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: 10 Year Treasury Under 2%

Post by Kevin M » Wed Jul 03, 2019 9:55 pm

tindel wrote:
Sat Jun 29, 2019 12:24 am
Virus4762 wrote:
Fri Jun 28, 2019 9:00 am
tindel wrote:
Wed Jun 26, 2019 1:47 pm
WhiteMaxima wrote:
Wed Jun 26, 2019 1:01 pm
What does this tell us?
It tells us that longer-term bond buyers believe that shorter-term bond rates will fall.
It tells us that shorter-term bond buyers believe that longer-term bond rates will rise.
If longer-term bond buyers were eschewing shorter-term bonds wouldn't it be because they think shorter-term bond rates would rise (leading to a shorter-term bond sell-off)?
On the contrary. Long bond buyers believe the yield of thier longer bond will outperform short bonds over the length of their bond. As such, they believe short bond rates will fall.
Not necessarily true. Two Fed models indicate a negative term premium for longer-term bonds, meaning that the expectation is that the average of short-term rates over the longer term will be higher than the longer-term yield. Although the expectation may be for lower short-term rates in the near future, for example due to Fed rate cuts, a negative term premium indicates the expectation of higher short-term rates over the longer period.

There are other reasons a buyer may prefer longer-term bonds. One is to match longer-term liabilities, as cold be the case for pension funds and insurance companies. Another is the hope for negative correlation with stocks, to hedge against a stock downturn.

Kevin
Wiki ||.......|| Suggested format for Asking Portfolio Questions (edit original post)

need403bhelp
Posts: 790
Joined: Thu May 28, 2015 6:25 pm

Re: 10 Year Treasury Under 2%

Post by need403bhelp » Mon Aug 05, 2019 8:48 pm

robertmcd wrote:
Fri Jun 28, 2019 2:19 pm
depositaccounts.com is the best resource for CD deals.

One of mine was a united bank 19 mo add on CD

The 5 yr 3.00% add on CD is still available at GTE financial
Hard credit pull to join? (Edit: gte financial)

garlandwhizzer
Posts: 2387
Joined: Fri Aug 06, 2010 3:42 pm

Re: 10 Year Treasury Under 2%

Post by garlandwhizzer » Mon Aug 05, 2019 9:59 pm

There is a very high level of uncertainty/fear among investors worldwide at this point. When fear and uncertainty grip investors they flee to the safest port in the storm, US Treasuries, which drives their prices up and their yields down. It is not predictable how low the 10 year can go IMO. Less than a year ago the market was expecting a 3.5+% 10 yr. Treasury yield at this time. The current yield is less than half of that which gives you a sense of how accurate and reliable even expert yield predictions are. Best IMO not to divine how low it's going and act on it at this time. Nobody knows nothing in this case.

From recent comments of both parties of the US/China trade dispute, it appears there is no fix is in sight and things may get worse. If threatened increases in tariffs by the US and retaliations by China occur, the only question is which economy will suffer more. Both as well as the global economy where these two are the strongest players will suffer. There is no such thing as intellectual property protection/rights in China. All intellectual property whether it originates within China or Silicon Valley is quickly stolen without any legal consequence in China. Their "free market" runs a lot like gladiatorial combat, few if any rules, winner takes all. Innovative creativity is not rewarded, laissez faire execution of business plan is rewarded. The two countries are so far apart on intellectual property and on many issues that a comprehensive agreement appears very unlikely at any time in the foreseeable future IMO. In addition to trade issues there are other global issues like aging demographics, high levels of debt, and there is clearly a global economic slowdown underway. The MSCI World Index, a cap-weighted global index, is about 4% lower now than it was 18 months ago. The US has been the positive outlier among global markets but even VTI in after hours trading today is selling for less than it did a year ago. Consumers in the US are still very optimistic but business leader sentiment has become more pessimistic which does not portend well for future corporate capital expenditure outlays. There is growing fear of a global recession and much uncertainty even in the US about our economic future. When this happens investors worldwide want US Treasuries. Until the fear subsides the floor of rates for Treasuries is likely a bit higher than what other reliable DM bonds pay. That is to say zero or negative rates. Currently there are 15 trillion dollars worth of negative yielding bonds in the world. I hope that and do not believe that we'll drop that low but rates could do down more in short and intermediate term bonds. Long bond yields will likely be less affected, remain stable, but are still extremely low by historical standards.

I believe the smart thing for investors to do now in the midst of all this risk and uncertainty (as is the case almost always) is nothing, especially if you have a solid all weather portfolio. You make your money when the market is crashing and risky. You just don't realize it at the time.

Garland Whizzer

User avatar
willthrill81
Posts: 11939
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: 10 Year Treasury Under 2%

Post by willthrill81 » Mon Aug 05, 2019 10:14 pm

The inflation break-even point for TIPS is currently 1.60%, which is slightly lower than the average inflation rate since 2010, 1.66%. Personally, I find 10 year TIPS much more appealing than 10 year Treasuries at that rate. Their 'inflation insurance' appears to be almost free right now, with the only 'cost' being their relative illiquidity compared to Treasuries.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

retiredflyboy
Posts: 136
Joined: Sun Dec 02, 2018 10:02 pm

Re: 10 Year Treasury Under 2%

Post by retiredflyboy » Mon Aug 05, 2019 10:18 pm

Very low rates abroad and a strong dollar along with low inflation/expectations.
Facts are stubborn things. Everything works until it doesn’t.

Post Reply