Treasury rates [- where do they go from here?]

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dan916
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Treasury rates [- where do they go from here?]

Post by dan916 »

Now that we have some guidance from Powell for the rest of this year and into 2023, where do you expect the 1,2 and 10 year treasury rates to go from here?

When the 10 year hit 3.48 I felt like the bond market was realistic in projecting a 75 bp hike. I am not sure why it fell so much today. Is the drop in yield pricing in the risk of recession where the fed would need to stop future rate hikes?
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Re: Treasury rates [- where do they go from here?]

Post by whodidntante »

20% across the board by the end of 2023. It will not be boring.
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SVariance1
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Re: Treasury rates [- where do they go from here?]

Post by SVariance1 »

I think how high rates go will be determined by inflation rates and whether or not the Fed can get it under control. I knew the first 25 basis point increase in the fed funds target did not really make much sense given the level of inflation. It looks like the Fed is trying to compensate for the timid action over the past year or so.
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Re: Treasury rates [- where do they go from here?]

Post by Gufomel »

whodidntante wrote: Wed Jun 15, 2022 10:28 pm 20% across the board by the end of 2023. It will not be boring.
20%?! S&P would hit 1k… or worse :|
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Re: Treasury rates [- where do they go from here?]

Post by Tom_T »

whodidntante wrote: Wed Jun 15, 2022 10:28 pm 20% across the board by the end of 2023. It will not be boring.
The rate will be 20%? Not a chance.
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Re: Treasury rates [- where do they go from here?]

Post by whodidntante »

Tom_T wrote: Thu Jun 16, 2022 7:35 am
whodidntante wrote: Wed Jun 15, 2022 10:28 pm 20% across the board by the end of 2023. It will not be boring.
The rate will be 20%? Not a chance.
My good buddy dan916 asked for a prediction. And he got it. Where's yours? :P
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whodidntante
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Re: Treasury rates [- where do they go from here?]

Post by whodidntante »

Gufomel wrote: Thu Jun 16, 2022 7:28 am
whodidntante wrote: Wed Jun 15, 2022 10:28 pm 20% across the board by the end of 2023. It will not be boring.
20%?! S&P would hit 1k… or worse :|
See? Not boring at all. :twisted:
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Re: Treasury rates [- where do they go from here?]

Post by ApeAttack »

whodidntante wrote: Thu Jun 16, 2022 8:50 am
Tom_T wrote: Thu Jun 16, 2022 7:35 am
whodidntante wrote: Wed Jun 15, 2022 10:28 pm 20% across the board by the end of 2023. It will not be boring.
The rate will be 20%? Not a chance.
My good buddy dan916 asked for a prediction. And he got it. Where's yours? :P
If it goes to 20%, I'm gonna buy some sweet sweet Treasury bonds.
Just another lazy index investor.
Robot Monster
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Re: Treasury rates [- where do they go from here?]

Post by Robot Monster »

I have no idea. But rates have had a tendency to move higher, and then down again. Maybe it's the end of that era. Dunno.

Image

Source: "Yes, But Which Yield Curve?" by Alfonso Peccatiello (Alf) link
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Re: Treasury rates [- where do they go from here?]

Post by whodidntante »

ApeAttack wrote: Thu Jun 16, 2022 9:17 am
whodidntante wrote: Thu Jun 16, 2022 8:50 am
Tom_T wrote: Thu Jun 16, 2022 7:35 am
whodidntante wrote: Wed Jun 15, 2022 10:28 pm 20% across the board by the end of 2023. It will not be boring.
The rate will be 20%? Not a chance.
My good buddy dan916 asked for a prediction. And he got it. Where's yours? :P
If it goes to 20%, I'm gonna buy some sweet sweet Treasury bonds.
Get ready. Rates will 🚀 to the 🌖

For anyone who can't tell, I am joking. I have no idea what is going to happen. Historically, inflation has proven hard to tame once it gets momentum. We may have poked the bear.
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Re: Treasury rates [- where do they go from here?]

Post by alex_686 »

Tom_T wrote: Thu Jun 16, 2022 7:35 am
whodidntante wrote: Wed Jun 15, 2022 10:28 pm 20% across the board by the end of 2023. It will not be boring.
The rate will be 20%? Not a chance.
I think he is referencing prices, not rates.

Lets say a 10 year treasury has a duration of 10. So a 1% change in rates would be a 10% change in prices. So a 2% rate increase would lead to a 20% drop in its price. Now I am simplifying things a bit. And while I think rates will go up, and hence prices will go down, I doubt it will be 20%. Within the realm of reason however.
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Re: Treasury rates [- where do they go from here?]

Post by Marseille07 »

Robot Monster wrote: Thu Jun 16, 2022 10:08 am I have no idea. But rates have had a tendency to move higher, and then down again. Maybe it's the end of that era. Dunno.

Image

Source: "Yes, But Which Yield Curve?" by Alfonso Peccatiello (Alf) link
That's because we weren't inflating during that 30-year period. Not sure why anyone still thinks the era hasn't ended already. When the era ended is up for debate, but there's no question it has ended.
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Robot Monster
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Re: Treasury rates [- where do they go from here?]

Post by Robot Monster »

Marseille07 wrote: Thu Jun 16, 2022 11:05 am
Robot Monster wrote: Thu Jun 16, 2022 10:08 am I have no idea. But rates have had a tendency to move higher, and then down again. Maybe it's the end of that era. Dunno.

Image

Source: "Yes, But Which Yield Curve?" by Alfonso Peccatiello (Alf) link
That's because we weren't inflating during that 30-year period. Not sure why anyone still thinks the era hasn't ended already. When the era ended is up for debate, but there's no question it has ended.
We have high inflation now, but not sure I understand what consequence current high levels of inflation have for the 30yr bond, though.
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Re: Treasury rates [- where do they go from here?]

Post by Marseille07 »

Robot Monster wrote: Thu Jun 16, 2022 5:25 pm We have high inflation now, but not sure I understand what consequence current high levels of inflation have for the 30yr bond, though.
The yield curve moves up. It's not overnight, will take years to manifest; but will go up over time unless inflation goes away.
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Robot Monster
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Re: Treasury rates [- where do they go from here?]

Post by Robot Monster »

Marseille07 wrote: Thu Jun 16, 2022 5:35 pm
Robot Monster wrote: Thu Jun 16, 2022 5:25 pm We have high inflation now, but not sure I understand what consequence current high levels of inflation have for the 30yr bond, though.
The yield curve moves up. It's not overnight, will take years to manifest; but will go up over time unless inflation goes away.
Why couldn't the long end of the curve go down if, even in the face of current high inflation, the bond market saw lower inflation (and/or lower growth) occurring in the future?
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Re: Treasury rates [- where do they go from here?]

Post by Marseille07 »

Robot Monster wrote: Thu Jun 16, 2022 5:52 pm Why couldn't the long end of the curve go down if, even in the face of current high inflation, the bond market saw lower inflation (and/or lower growth) occurring in the future?
Because that's not quite how the yields are priced.

Look at the chart you posted for 1987, for example. The long-term yields went up from 7 to 10% when CPI was printing 2~3% at that time. Are you saying they were hallucinating and saw some magical inflation 20 years later? I don't think so.
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Robot Monster
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Re: Treasury rates [- where do they go from here?]

Post by Robot Monster »

Marseille07 wrote: Thu Jun 16, 2022 5:56 pm
Robot Monster wrote: Thu Jun 16, 2022 5:52 pm Why couldn't the long end of the curve go down if, even in the face of current high inflation, the bond market saw lower inflation (and/or lower growth) occurring in the future?
Because that's not quite how the yields are priced.

Look at the chart you posted for 1987, for example. The long-term yields went up from 7 to 10% when CPI was printing 2~3% at that time. Are you saying they were hallucinating and saw some magical inflation 20 years later? I don't think so.
I'm actually honestly just trying to understand. Not trying to press a point. Sorry if it came off that way.
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Re: Treasury rates [- where do they go from here?]

Post by Marseille07 »

Robot Monster wrote: Thu Jun 16, 2022 6:28 pm I'm actually honestly just trying to understand. Not trying to press a point. Sorry if it came off that way.
I wasn't implying that at all, just trying to explain that the bondholders are inertia driven, they don't have any special ability to predict future inflation rates.
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Re: Treasury rates [- where do they go from here?]

Post by whodidntante »

alex_686 wrote: Thu Jun 16, 2022 10:12 am
Tom_T wrote: Thu Jun 16, 2022 7:35 am
whodidntante wrote: Wed Jun 15, 2022 10:28 pm 20% across the board by the end of 2023. It will not be boring.
The rate will be 20%? Not a chance.
I think he is referencing prices, not rates.

Lets say a 10 year treasury has a duration of 10. So a 1% change in rates would be a 10% change in prices. So a 2% rate increase would lead to a 20% drop in its price. Now I am simplifying things a bit. And while I think rates will go up, and hence prices will go down, I doubt it will be 20%. Within the realm of reason however.
Nope. My prediction is that the effective yield of a 1, 2, and 10 Treasury note will be 20% by the end of 2023. :D :wink:
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Re: Treasury rates [- where do they go from here?]

Post by ApeAttack »

whodidntante wrote: Thu Jun 16, 2022 10:11 am
ApeAttack wrote: Thu Jun 16, 2022 9:17 am
whodidntante wrote: Thu Jun 16, 2022 8:50 am
Tom_T wrote: Thu Jun 16, 2022 7:35 am
whodidntante wrote: Wed Jun 15, 2022 10:28 pm 20% across the board by the end of 2023. It will not be boring.
The rate will be 20%? Not a chance.
My good buddy dan916 asked for a prediction. And he got it. Where's yours? :P
If it goes to 20%, I'm gonna buy some sweet sweet Treasury bonds.
Get ready. Rates will 🚀 to the 🌖

For anyone who can't tell, I am joking. I have no idea what is going to happen. Historically, inflation has proven hard to tame once it gets momentum. We may have poked the bear.
Too late. I'm gonna sell everything and wait for JPow to pull the doomsday switch. Then I'll get 20% per year for 30 years.
Just another lazy index investor.
billyt
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Re: Treasury rates [- where do they go from here?]

Post by billyt »

Please take note: Since the Federal Reserve Target rate was increased by .75% on Wednesday, Treasury rates have fallen, especially on the short end!

billyt
johnny
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Re: Treasury rates [- where do they go from here?]

Post by johnny »

Article published recently describes some rate history:

https://www.bankrate.com/banking/federa ... -rate/amp/

In 1980 they started the year at 14% and finished the year at 20% :shock:
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Re: Treasury rates [- where do they go from here?]

Post by unclescrooge »

alex_686 wrote: Thu Jun 16, 2022 10:12 am
Tom_T wrote: Thu Jun 16, 2022 7:35 am
whodidntante wrote: Wed Jun 15, 2022 10:28 pm 20% across the board by the end of 2023. It will not be boring.
The rate will be 20%? Not a chance.
I think he is referencing prices, not rates.

Lets say a 10 year treasury has a duration of 10. So a 1% change in rates would be a 10% change in prices. So a 2% rate increase would lead to a 20% drop in its price. Now I am simplifying things a bit. And while I think rates will go up, and hence prices will go down, I doubt it will be 20%. Within the realm of reason however.
Long term treasuries are already down 20% this year. TLT is down 25%.😲

But do long term bonds need to follow the short term rates set by the Fed? I thought they are set by supply and demand.
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Re: Treasury rates [- where do they go from here?]

Post by MnD »

unclescrooge wrote: Fri Jun 17, 2022 11:27 am
alex_686 wrote: Thu Jun 16, 2022 10:12 am
Tom_T wrote: Thu Jun 16, 2022 7:35 am
whodidntante wrote: Wed Jun 15, 2022 10:28 pm 20% across the board by the end of 2023. It will not be boring.
The rate will be 20%? Not a chance.
I think he is referencing prices, not rates.

Lets say a 10 year treasury has a duration of 10. So a 1% change in rates would be a 10% change in prices. So a 2% rate increase would lead to a 20% drop in its price. Now I am simplifying things a bit. And while I think rates will go up, and hence prices will go down, I doubt it will be 20%. Within the realm of reason however.
Long term treasuries are already down 20% this year. TLT is down 25%.😲

But do long term bonds need to follow the short term rates set by the Fed? I thought they are set by supply and demand.
The fed has a 9 trillion dollar balance sheet they intend to unwind that consists mainly of intermediate and long term Treasuries and mortgage backed securities. So this time around they effectively have control of the whole yield curve.
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dan916
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Re: Treasury rates [- where do they go from here?]

Post by dan916 »

Is anyone buying bond funds considering we are expecting rates to go up and those prices to continue falling?

The other option is individual bonds, but thats a major PIA.

The problem with bond funds kicking off relatively low interest rate (historically) its very easy for a modest increase in interest rates to cost you 2 years worth of interest. Happened this year already even with short term bond funds. Only now is the interest starting to inch higher to offset some of those loses.

Honestly IDK what to do. Interest rates from bond funds are still relatively low, and the price of the funds can continue to sink. i dont see any situation with interest rates coming down considering current inflation levels.
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Re: Treasury rates [- where do they go from here?]

Post by jmmec »

billyt wrote: Fri Jun 17, 2022 5:53 am Please take note: Since the Federal Reserve Target rate was increased by .75% on Wednesday, Treasury rates have fallen, especially on the short end!

billyt
Wonder why this is happening?
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Re: Treasury rates [- where do they go from here?]

Post by alex_686 »

unclescrooge wrote: Fri Jun 17, 2022 11:27 am
alex_686 wrote: Thu Jun 16, 2022 10:12 am
Tom_T wrote: Thu Jun 16, 2022 7:35 am
whodidntante wrote: Wed Jun 15, 2022 10:28 pm 20% across the board by the end of 2023. It will not be boring.
The rate will be 20%? Not a chance.
I think he is referencing prices, not rates.

Lets say a 10 year treasury has a duration of 10. So a 1% change in rates would be a 10% change in prices. So a 2% rate increase would lead to a 20% drop in its price. Now I am simplifying things a bit. And while I think rates will go up, and hence prices will go down, I doubt it will be 20%. Within the realm of reason however.
Long term treasuries are already down 20% this year. TLT is down 25%.😲

But do long term bonds need to follow the short term rates set by the Fed? I thought they are set by supply and demand.
Yes and no. Ultimately yes, it is based on supply and demand. But there are causal links between the two. So lets head into the joys of bond pricing and the yield curve.

Lets say that short term Fed Rates and the 6 month treasury rate are equivalent. They are not but I don’t want to get into the nuances and math. Functionally they are pretty close.

Mathematically a 10 year Treasury bond can be deconstructed into 20 different bonds. 19 coupon payments plus the finial coupon and principle payment.

The yield on the 1st coupon in 6 months must be the same of that of a 6 month treasury. If not there would be a risk free trade that generates a profit. i.e., No Arbitrage Price Theory. So that links to the short term yield.

The yield on the 2nd coupon in 12 months must be the same as that as the yield of a 6 month forward on a 6 month treasury. Which must be the same as a 1 year treasury because a 1 year treasury is mathematically just 2 bonds, the 6 month and 12 month cash flow. So that all links to short term rates.

And repeat 18 more times until you get to the 10 year.

In practice it holds up pretty well. There are other forces and nuances in play but it is not like you can decouple long term rates and short term rates.
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Re: Treasury rates [- where do they go from here?]

Post by Tom_T »

jmmec wrote: Fri Jun 17, 2022 12:03 pm
billyt wrote: Fri Jun 17, 2022 5:53 am Please take note: Since the Federal Reserve Target rate was increased by .75% on Wednesday, Treasury rates have fallen, especially on the short end!

billyt
Wonder why this is happening?
It's not a perfect relationship by any means, as you well know. The market is constantly betting on what is going to happen and when. It's possible that there was some expectation of a 100bps hike built into the rate the other day, and that didn't happen.

And of course any time Powell opens his mouth, his words are parsed to death.

Plus there's the usual market effect of parties buying or selling bonds for whatever reason.
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Re: Treasury rates [- where do they go from here?]

Post by billaster »

MnD wrote: Fri Jun 17, 2022 11:42 am The fed has a 9 trillion dollar balance sheet they intend to unwind that consists mainly of intermediate and long term Treasuries and mortgage backed securities. So this time around they effectively have control of the whole yield curve.
The Fed started June 1 reducing their balance sheet by $30 billion in Treasuries a month, to be increased to $60 billion a month in September.

That's about $1.5 billion to $3.0 billion for each trading day. Treasuries trade in the open market about $600 billion a day. So the Fed's sales in the open market are about 0.5% of daily trading. The effect is very small, raising longer term rates maybe 10 or 20 basis points.

Many people tend to wildly exaggerate the effects of quantitative easing and tightening. The Fed's primary lever is the short term Federal Funds Rate. QE is only a marginal effect.
cacophony
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Re: Treasury rates [- where do they go from here?]

Post by cacophony »

dan916 wrote: Fri Jun 17, 2022 11:58 am Is anyone buying bond funds considering we are expecting rates to go up and those prices to continue falling?
Isn't any new info that affects expected rates going forward priced in to the nav of bond funds? In other words, the people who are putting off purchase of a bond fund due to rising rates are declaring they know more than the market.
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Re: Treasury rates [- where do they go from here?]

Post by balbrec2 »

The few minutes you spend rebalancing a reasonable asset allocation
will be worth more than the hours you spend trying to guess what's going to happen to interest rates
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Re: Treasury rates [- where do they go from here?]

Post by unclescrooge »

alex_686 wrote: Fri Jun 17, 2022 12:56 pm
Yes and no. Ultimately yes, it is based on supply and demand. But there are causal links between the two. So lets head into the joys of bond pricing and the yield curve.

Lets say that short term Fed Rates and the 6 month treasury rate are equivalent. They are not but I don’t want to get into the nuances and math. Functionally they are pretty close.

Mathematically a 10 year Treasury bond can be deconstructed into 20 different bonds. 19 coupon payments plus the finial coupon and principle payment.

The yield on the 1st coupon in 6 months must be the same of that of a 6 month treasury. If not there would be a risk free trade that generates a profit. i.e., No Arbitrage Price Theory. So that links to the short term yield.

The yield on the 2nd coupon in 12 months must be the same as that as the yield of a 6 month forward on a 6 month treasury. Which must be the same as a 1 year treasury because a 1 year treasury is mathematically just 2 bonds, the 6 month and 12 month cash flow. So that all links to short term rates.

And repeat 18 more times until you get to the 10 year.

In practice it holds up pretty well. There are other forces and nuances in play but it is not like you can decouple long term rates and short term rates.
Thanks for the explanation. It makes sense.

So knowing that interest rates are going up, how have you hedged your bond exposure?
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dan916
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Re: Treasury rates [- where do they go from here?]

Post by dan916 »

balbrec2 wrote: Fri Jun 17, 2022 1:59 pm The few minutes you spend rebalancing a reasonable asset allocation
will be worth more than the hours you spend trying to guess what's going to happen to interest rates
I get your point. However bonds are supposed to be "safe" investments. My short term tax exempt funds lost 3 years worth of interest so far YTD. This doesnt seem like a good deal especially since the 1 year treasury is paying 3% risk free.
Marseille07
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Re: Treasury rates [- where do they go from here?]

Post by Marseille07 »

dan916 wrote: Sat Jun 18, 2022 4:20 pm I get your point. However bonds are supposed to be "safe" investments. My short term tax exempt funds lost 3 years worth of interest so far YTD. This doesnt seem like a good deal especially since the 1 year treasury is paying 3% risk free.
Bonds are not safe. They may have appeared so because the yields were falling and disguised their true nature.

2 primary options:
a) hold bonds directly
b) shorten the duration
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Northern Flicker
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Re: Treasury rates [- where do they go from here?]

Post by Northern Flicker »

MnD wrote: Fri Jun 17, 2022 11:42 am
unclescrooge wrote: Fri Jun 17, 2022 11:27 am
alex_686 wrote: Thu Jun 16, 2022 10:12 am
Tom_T wrote: Thu Jun 16, 2022 7:35 am
whodidntante wrote: Wed Jun 15, 2022 10:28 pm 20% across the board by the end of 2023. It will not be boring.
The rate will be 20%? Not a chance.
I think he is referencing prices, not rates.

Lets say a 10 year treasury has a duration of 10. So a 1% change in rates would be a 10% change in prices. So a 2% rate increase would lead to a 20% drop in its price. Now I am simplifying things a bit. And while I think rates will go up, and hence prices will go down, I doubt it will be 20%. Within the realm of reason however.
Long term treasuries are already down 20% this year. TLT is down 25%.😲

But do long term bonds need to follow the short term rates set by the Fed? I thought they are set by supply and demand.
The fed has a 9 trillion dollar balance sheet they intend to unwind that consists mainly of intermediate and long term Treasuries and mortgage backed securities. So this time around they effectively have control of the whole yield curve.
If you look at table H.4.1 table 2 here:

https://www.federalreserve.gov/releases ... tm#h41tab2

you will see that only about half of the treasuries on the balance sheet have a remaining maturity of more than 5 years.

And about 21% of the treasuries held will roll off the balance sheet by maturing in the next 12 months.
My postings are my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
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dan916
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Re: Treasury rates [- where do they go from here?]

Post by dan916 »

Marseille07 wrote: Sat Jun 18, 2022 4:24 pm
dan916 wrote: Sat Jun 18, 2022 4:20 pm I get your point. However bonds are supposed to be "safe" investments. My short term tax exempt funds lost 3 years worth of interest so far YTD. This doesnt seem like a good deal especially since the 1 year treasury is paying 3% risk free.
Bonds are not safe. They may have appeared so because the yields were falling and disguised their true nature.

2 primary options:
a) hold bonds directly
b) shorten the duration
How would I buy municipal bonds directly? Im in highest tax bracket. I called VG and Fidelity and was told they do not do primary offering and I can only buy them on the secondary market.
Marseille07
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Re: Treasury rates [- where do they go from here?]

Post by Marseille07 »

dan916 wrote: Sat Jun 18, 2022 5:54 pm
Marseille07 wrote: Sat Jun 18, 2022 4:24 pm
dan916 wrote: Sat Jun 18, 2022 4:20 pm I get your point. However bonds are supposed to be "safe" investments. My short term tax exempt funds lost 3 years worth of interest so far YTD. This doesnt seem like a good deal especially since the 1 year treasury is paying 3% risk free.
Bonds are not safe. They may have appeared so because the yields were falling and disguised their true nature.

2 primary options:
a) hold bonds directly
b) shorten the duration
How would I buy municipal bonds directly? Im in highest tax bracket. I called VG and Fidelity and was told they do not do primary offering and I can only buy them on the secondary market.
I am not sure, I thought you were talking about US treasuries. Maybe you need to buy a bond fund for municipal bonds.
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Topic Author
dan916
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Re: Treasury rates [- where do they go from here?]

Post by dan916 »

Marseille07 wrote: Sat Jun 18, 2022 5:57 pm
dan916 wrote: Sat Jun 18, 2022 5:54 pm
Marseille07 wrote: Sat Jun 18, 2022 4:24 pm
dan916 wrote: Sat Jun 18, 2022 4:20 pm I get your point. However bonds are supposed to be "safe" investments. My short term tax exempt funds lost 3 years worth of interest so far YTD. This doesnt seem like a good deal especially since the 1 year treasury is paying 3% risk free.
Bonds are not safe. They may have appeared so because the yields were falling and disguised their true nature.

2 primary options:
a) hold bonds directly
b) shorten the duration
How would I buy municipal bonds directly? Im in highest tax bracket. I called VG and Fidelity and was told they do not do primary offering and I can only buy them on the secondary market.
I am not sure, I thought you were talking about US treasuries. Maybe you need to buy a bond fund for municipal bonds.
with fund i cant hold directly.
Marseille07
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Re: Treasury rates [- where do they go from here?]

Post by Marseille07 »

dan916 wrote: Sat Jun 18, 2022 6:27 pm with fund i cant hold directly.
Correct. That's a tradeoff you need to consider when going after municipal bonds. I was referring to US treasuries when I mentioned holding directly.
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billaster
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Re: Treasury rates [- where do they go from here?]

Post by billaster »

Northern Flicker wrote: Sat Jun 18, 2022 4:40 pm
If you look at table H.4.1 table 2 here:

https://www.federalreserve.gov/releases ... tm#h41tab2

you will see that only about half of the treasuries on the balance sheet have a remaining maturity of more than 5 years.

And about 21% of the treasuries held will roll off the balance sheet by maturing in the next 12 months.
They won't be rolling off 21% in the next 12 months. They are only rolling off $30 billion a month to be increased to $60 billion a month in September. Any maturing bonds beyond those target amounts will be rolled over into new bonds on the balance sheet. So maybe 10% reduction in the next 12 months.

At the higher $60 billion a month rate, if they were to maintain that pace, it would take over 8 years to eliminate all treasuries on the balance sheet. But I doubt that the Fed will go that far. They will probably keep a trillion or two on their balance sheet.
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Re: Treasury rates [- where do they go from here?]

Post by Northern Flicker »

dan916 wrote: Sat Jun 18, 2022 6:27 pm
Marseille07 wrote: Sat Jun 18, 2022 5:57 pm
dan916 wrote: Sat Jun 18, 2022 5:54 pm
Marseille07 wrote: Sat Jun 18, 2022 4:24 pm
dan916 wrote: Sat Jun 18, 2022 4:20 pm I get your point. However bonds are supposed to be "safe" investments. My short term tax exempt funds lost 3 years worth of interest so far YTD. This doesnt seem like a good deal especially since the 1 year treasury is paying 3% risk free.
Bonds are not safe. They may have appeared so because the yields were falling and disguised their true nature.

2 primary options:
a) hold bonds directly
b) shorten the duration
How would I buy municipal bonds directly? Im in highest tax bracket. I called VG and Fidelity and was told they do not do primary offering and I can only buy them on the secondary market.
I am not sure, I thought you were talking about US treasuries. Maybe you need to buy a bond fund for municipal bonds.
with fund i cant hold directly.
If ER is low, the treasury fund will have a higher expected return than treasury bonds you hold directly if duration is matched.
My postings are my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
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ray.james
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Re: Treasury rates [- where do they go from here?]

Post by ray.james »

VFISX _ vanguard short term treasury with 2.3 year maturity has YTM of 3%. In my view this is not bad. I see no more than 50bps upside from here. I would invest if not for the current market downturn which is enticing me to invest in other areas . EM bonds look very favorable to me. VWOB - dollar denominated emerging market government bonds are at 6%+ against a 4% coupon.
Last edited by ray.james on Sun Jun 19, 2022 11:02 am, edited 1 time in total.
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Re: Treasury rates [- where do they go from here?]

Post by bgf »

Marseille07 wrote: Thu Jun 16, 2022 11:05 am
Robot Monster wrote: Thu Jun 16, 2022 10:08 am I have no idea. But rates have had a tendency to move higher, and then down again. Maybe it's the end of that era. Dunno.

Image

Source: "Yes, But Which Yield Curve?" by Alfonso Peccatiello (Alf) link
That's because we weren't inflating during that 30-year period. Not sure why anyone still thinks the era hasn't ended already. When the era ended is up for debate, but there's no question it has ended.
There is definitely a question about whether it’s ended. Thirty years is a long time. You have to determine whether the reasons for the long term downward trend have changed. While no one can be certain, I think there was a consensus that low rates were due to a few long lasting sources - demographics, globalization, increasing debt, and detente.

Recently, I’ve seen no reason that demographic trends have reversed.

There has been much talk that with the supply issues and logistical shipping problems recently that globalization may revert with countries producing more for themselves - time will tell but I’m not convinced. Generally, people have shown they are almost always driven more by near term profit than long term defense to unseen problems. Taleb wrote books on our fundamental blindness to some of these kind of known but “hidden” dangers.

I don’t see a massive reversal of the long term trend of global debt accumulation.

Finally, we do have war now - Russia and Ukraine, and it’s effects have been very large. Time will tell how long it lasts, but again, I’m betting that the inflationary forces due to this war will not be a long term constant. Of course they could be, but you pays your money and you takes your chance.

Altogether, I don’t see why these global deflationary forces have reversed for the long term, and if the reasons haven’t changed, it’s unlikely the long term trend has.
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Marseille07
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Re: Treasury rates [- where do they go from here?]

Post by Marseille07 »

bgf wrote: Sun Jun 19, 2022 7:06 am There is definitely a question about whether it’s ended. Thirty years is a long time. You have to determine whether the reasons for the long term downward trend have changed. While no one can be certain, I think there was a consensus that low rates were due to a few long lasting sources - demographics, globalization, increasing debt, and detente.

Recently, I’ve seen no reason that demographic trends have reversed.

There has been much talk that with the supply issues and logistical shipping problems recently that globalization may revert with countries producing more for themselves - time will tell but I’m not convinced. Generally, people have shown they are almost always driven more by near term profit than long term defense to unseen problems. Taleb wrote books on our fundamental blindness to some of these kind of known but “hidden” dangers.

I don’t see a massive reversal of the long term trend of global debt accumulation.

Finally, we do have war now - Russia and Ukraine, and it’s effects have been very large. Time will tell how long it lasts, but again, I’m betting that the inflationary forces due to this war will not be a long term constant. Of course they could be, but you pays your money and you takes your chance.

Altogether, I don’t see why these global deflationary forces have reversed for the long term, and if the reasons haven’t changed, it’s unlikely the long term trend has.
We need to agree to disagree then. 30 years is a long time but inflation hitting a 40 year high.

I've heard those narratives before (demographics, globalization etc etc) but I don't buy them because they aren't the reasons why bondholders demand coupon rates across the yield curve.
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Re: Treasury rates [- where do they go from here?]

Post by MikeG62 »

dan916 wrote: Fri Jun 17, 2022 11:58 am Is anyone buying bond funds considering we are expecting rates to go up and those prices to continue falling?

The other option is individual bonds, but thats a major PIA.

The problem with bond funds kicking off relatively low interest rate (historically) its very easy for a modest increase in interest rates to cost you 2 years worth of interest. Happened this year already even with short term bond funds. Only now is the interest starting to inch higher to offset some of those loses.

Honestly IDK what to do. Interest rates from bond funds are still relatively low, and the price of the funds can continue to sink. i dont see any situation with interest rates coming down considering current inflation levels.
Absolutely not buying bond funds. I am buying Treasury Bills and short-term Treasury Bonds (out to 2-years) - things I can hold until maturity. I am holding my fire on intermediate (for me I'd call this 5-year) to longer-term (for me I'd call this 10-year) Treasuries as I don't think we are at the top now (but in no event do I expect anything like the 20% that has been predicted above). If yields creep above 4.0% on Treasuries of that duration, I do expect to begin buying.
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martincmartin
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Re: Treasury rates [- where do they go from here?]

Post by martincmartin »

dan916 wrote: Wed Jun 15, 2022 10:05 pm Now that we have some guidance from Powell for the rest of this year and into 2023, where do you expect the 1,2 and 10 year treasury rates to go from here?

When the 10 year hit 3.48 I felt like the bond market was realistic in projecting a 75 bp hike. I am not sure why it fell so much today. Is the drop in yield pricing in the risk of recession where the fed would need to stop future rate hikes?
The language everybody uses around this is very confusing. The Fed sets a rate that it charges banks to hold their money overnight. The government does not directly set Treasury rates, they tried this once and it was a disaster. Instead, Treasury rates are set at auction. This means Treasury rates already reflect all publicly available information. They already reflect the guidance from Powell about future Fed rate increases. If inflation, Fed rate increases, and everything else follows expectations, Treasury rates won't change.

So to answer your question: there's no point in trying to predict where they go. They're just as likely to go up or down, at least over the next year. Just stick to your previous plan, ignore the news and rebalance once a year, at the same time every year.
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Re: Treasury rates [- where do they go from here?]

Post by bgf »

martincmartin wrote: Sun Jun 19, 2022 10:45 am
dan916 wrote: Wed Jun 15, 2022 10:05 pm Now that we have some guidance from Powell for the rest of this year and into 2023, where do you expect the 1,2 and 10 year treasury rates to go from here?

When the 10 year hit 3.48 I felt like the bond market was realistic in projecting a 75 bp hike. I am not sure why it fell so much today. Is the drop in yield pricing in the risk of recession where the fed would need to stop future rate hikes?
The language everybody uses around this is very confusing. The Fed sets a rate that it charges banks to hold their money overnight. The government does not directly set Treasury rates, they tried this once and it was a disaster. Instead, Treasury rates are set at auction. This means Treasury rates already reflect all publicly available information. They already reflect the guidance from Powell about future Fed rate increases. If inflation, Fed rate increases, and everything else follows expectations, Treasury rates won't change.

So to answer your question: there's no point in trying to predict where they go. They're just as likely to go up or down, at least over the next year. Just stick to your previous plan, ignore the news and rebalance once a year, at the same time every year.
As frequently as we preach that we cannot predict equity returns (and so we shouldn’t even try) we likewise cannot predict the movement of interest rates.

There are many here, it seems like, that accept the former but reject the latter.
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Re: Treasury rates [- where do they go from here?]

Post by AerialWombat »

bgf wrote: Sun Jun 19, 2022 11:43 am As frequently as we preach that we cannot predict equity returns (and so we shouldn’t even try) we likewise cannot predict the movement of interest rates.
Nor can we predict inflation rates. This is why my personal finance model is based on 0% nominal yields and 4% inflation for the next 40 years.
This post is a work of fiction. Any similarity to real financial advice is purely coincidental.
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dan916
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Re: Treasury rates [- where do they go from here?]

Post by dan916 »

ray.james wrote: Sun Jun 19, 2022 2:34 am VFISX _ vanguard short term treasury with 2.3 year maturity has YTM of 3%. In my view this is not bad. I see no more than 50bps upside from here. I would invest if not for the current market downturn which is enticing me to invest in other areas . EM bonds look very favorable to me. VWOB - dollar denominated emerging market government bonds are at 6%+ against a 4% coupon.
Why not just buy the 1 year T bill which is yielding about 2.8%?
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ray.james
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Re: Treasury rates [- where do they go from here?]

Post by ray.james »

dan916 wrote: Wed Jun 22, 2022 1:19 pm
ray.james wrote: Sun Jun 19, 2022 2:34 am VFISX _ vanguard short term treasury with 2.3 year maturity has YTM of 3%. In my view this is not bad. I see no more than 50bps upside from here. I would invest if not for the current market downturn which is enticing me to invest in other areas . EM bonds look very favorable to me. VWOB - dollar denominated emerging market government bonds are at 6%+ against a 4% coupon.
Why not just buy the 1 year T bill which is yielding about 2.8%?
Sure, I would take that. The only reason I mentioned a fund is, people prefer funds for the simplicity. But you can bid and buy individual t-biils of 12 months/ 2 years for 50 bps higher.
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