First 20% of bonds in long-term Treasuries

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Forester
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Re: First 20% of bonds in long-term Treasuries

Post by Forester » Tue May 19, 2020 1:20 pm

international001 wrote:
Tue May 19, 2020 6:25 am
Forester wrote:
Mon May 18, 2020 6:18 pm
Should non-Americans have the bulk of their bonds in LT treasuries?
You should IMO, at least that 20%
Currency risk is small, sine LTT have high volatility and when in conjunction with stocks, volatility still gets higher
In my mind, exchange beteween major currencies like EUR/DOLLAR is about 8%, so as long as your portfolio has higher volatility that that, currency doesn't doesn't matter much. If your currency are argentinan pesos, then it may be different.
My thinking is that US treasuries may be more beneficial for non-Americans than Americans especially since their cost of living will be in their own currency and the USD will spike higher when SHTF.

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Re: First 20% of bonds in long-term Treasuries

Post by Anon9001 » Tue May 19, 2020 1:33 pm

international001 wrote:
Tue May 19, 2020 6:25 am
Forester wrote:
Mon May 18, 2020 6:18 pm
Should non-Americans have the bulk of their bonds in LT treasuries?
You should IMO, at least that 20%
Currency risk is small, sine LTT have high volatility and when in conjunction with stocks, volatility still gets higher
In my mind, exchange beteween major currencies like EUR/DOLLAR is about 8%, so as long as your portfolio has higher volatility that that, currency doesn't doesn't matter much. If your currency are argentinan pesos, then it may be different.
It depends entirely what Non-Americans you are talking about. For me with local inflation at 6-8% buying LTT is junk unless it is currency hedged which will bring the returns much closer to my local bonds.

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Re: First 20% of bonds in long-term Treasuries

Post by Forester » Wed May 20, 2020 3:12 am

Anon9001 wrote:
Tue May 19, 2020 1:33 pm
international001 wrote:
Tue May 19, 2020 6:25 am
Forester wrote:
Mon May 18, 2020 6:18 pm
Should non-Americans have the bulk of their bonds in LT treasuries?
You should IMO, at least that 20%
Currency risk is small, sine LTT have high volatility and when in conjunction with stocks, volatility still gets higher
In my mind, exchange beteween major currencies like EUR/DOLLAR is about 8%, so as long as your portfolio has higher volatility that that, currency doesn't doesn't matter much. If your currency are argentinan pesos, then it may be different.
It depends entirely what Non-Americans you are talking about. For me with local inflation at 6-8% buying LTT is junk unless it is currency hedged which will bring the returns much closer to my local bonds.
I mean that non-Americans should mostly own US bonds, as the USD is the senior funding currency and all things being equal should rise more than other currencies when global stocks fall.

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Re: First 20% of bonds in long-term Treasuries

Post by Noobvestor » Wed May 20, 2020 5:01 am

Forester wrote:
Mon May 18, 2020 6:18 pm
Should non-Americans have the bulk of their bonds in LT treasuries?
I wouldn't personally. Currency risk goes on the stock side of the portfolio for me. Long bonds are volatile enough without adding currency risk. I'm trying to imagine myself living in, say, Europe, and deciding to buy dismal 1%-yielding US long bonds ... and can't picture it. Seems wild. Maybe some US bonds if you have currency-hedged fund/ETF options, but outside of that, the currency fluctuations will dominate the situation.

More broadly (and I'm open to better rules of thumb) I think having at least 50% of portfolio assets denominated in your home-country currency is wise. Usually, the easiest way to get there is through bonds. E.g. A European with a 70/30 portfolio could be 50% ex-Europe stocks, 20% European stocks, 30% European bonds. If you start to switch out the bonds for Treasuries you start to up volatility a lot in Euro-denominated terms.

It's easy for US-based investors to forget currency risks, because for most of us it's just not a big deal. I'm 60/40 stocks/bonds, 50/50 US/international in stocks, for example, which means in total 70% of my portfolio is in USD (30% stocks, 40% bonds). No real issue there. For someone living in a country with a much smaller stock market cap, currency can be a harder thing to balance w/o hedged funds.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

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Re: First 20% of bonds in long-term Treasuries

Post by Noobvestor » Wed May 20, 2020 5:04 am

Forester wrote:
Wed May 20, 2020 3:12 am
I mean that non-Americans should mostly own US bonds, as the USD is the senior funding currency and all things being equal should rise more than other currencies when global stocks fall.
Portfolios aren't just for hedging crises - long-term currency divergences could be very problematic for a non-US investors using USD bonds.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

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Re: First 20% of bonds in long-term Treasuries

Post by Forester » Wed May 20, 2020 5:47 am

Noobvestor wrote:
Wed May 20, 2020 5:01 am
Forester wrote:
Mon May 18, 2020 6:18 pm
Should non-Americans have the bulk of their bonds in LT treasuries?
I wouldn't personally. Currency risk goes on the stock side of the portfolio for me. Long bonds are volatile enough without adding currency risk. I'm trying to imagine myself living in, say, Europe, and deciding to buy dismal 1%-yielding US long bonds ... and can't picture it. Seems wild. Maybe some US bonds if you have currency-hedged fund/ETF options, but outside of that, the currency fluctuations will dominate the situation.

More broadly (and I'm open to better rules of thumb) I think having at least 50% of portfolio assets denominated in your home-country currency is wise. Usually, the easiest way to get there is through bonds. E.g. A European with a 70/30 portfolio could be 50% ex-Europe stocks, 20% European stocks, 30% European bonds. If you start to switch out the bonds for Treasuries you start to up volatility a lot in Euro-denominated terms.

It's easy for US-based investors to forget currency risks, because for most of us it's just not a big deal. I'm 60/40 stocks/bonds, 50/50 US/international in stocks, for example, which means in total 70% of my portfolio is in USD (30% stocks, 40% bonds). No real issue there. For someone living in a country with a much smaller stock market cap, currency can be a harder thing to balance w/o hedged funds.
But wouldn't LT US government bonds be on the "other side" of a global portfolio? Maybe you're right, but I'm looking at it in terms of hedging global stocks. If US LT bonds are selling off, volatile in their own right, that would imply the global stock leg of the portfolio is probably doing OK.

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Re: First 20% of bonds in long-term Treasuries

Post by Day9 » Fri May 22, 2020 11:37 pm

Forester wrote:
Wed May 20, 2020 5:47 am
Noobvestor wrote:
Wed May 20, 2020 5:01 am
Forester wrote:
Mon May 18, 2020 6:18 pm
Should non-Americans have the bulk of their bonds in LT treasuries?
I wouldn't personally. Currency risk goes on the stock side of the portfolio for me. Long bonds are volatile enough without adding currency risk. I'm trying to imagine myself living in, say, Europe, and deciding to buy dismal 1%-yielding US long bonds ... and can't picture it. Seems wild. Maybe some US bonds if you have currency-hedged fund/ETF options, but outside of that, the currency fluctuations will dominate the situation.

More broadly (and I'm open to better rules of thumb) I think having at least 50% of portfolio assets denominated in your home-country currency is wise. Usually, the easiest way to get there is through bonds. E.g. A European with a 70/30 portfolio could be 50% ex-Europe stocks, 20% European stocks, 30% European bonds. If you start to switch out the bonds for Treasuries you start to up volatility a lot in Euro-denominated terms.

It's easy for US-based investors to forget currency risks, because for most of us it's just not a big deal. I'm 60/40 stocks/bonds, 50/50 US/international in stocks, for example, which means in total 70% of my portfolio is in USD (30% stocks, 40% bonds). No real issue there. For someone living in a country with a much smaller stock market cap, currency can be a harder thing to balance w/o hedged funds.
But wouldn't LT US government bonds be on the "other side" of a global portfolio? Maybe you're right, but I'm looking at it in terms of hedging global stocks. If US LT bonds are selling off, volatile in their own right, that would imply the global stock leg of the portfolio is probably doing OK.
The key to this is to think in REAL (after inflation) terms. The exception to your post is a stagflation scenario like the 70s where there is high inflation yet the stock market is not going up.
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Re: First 20% of bonds in long-term Treasuries

Post by Forester » Sat May 23, 2020 6:40 am

Day9 wrote:
Fri May 22, 2020 11:37 pm
Forester wrote:
Wed May 20, 2020 5:47 am
Noobvestor wrote:
Wed May 20, 2020 5:01 am
Forester wrote:
Mon May 18, 2020 6:18 pm
Should non-Americans have the bulk of their bonds in LT treasuries?
I wouldn't personally. Currency risk goes on the stock side of the portfolio for me. Long bonds are volatile enough without adding currency risk. I'm trying to imagine myself living in, say, Europe, and deciding to buy dismal 1%-yielding US long bonds ... and can't picture it. Seems wild. Maybe some US bonds if you have currency-hedged fund/ETF options, but outside of that, the currency fluctuations will dominate the situation.

More broadly (and I'm open to better rules of thumb) I think having at least 50% of portfolio assets denominated in your home-country currency is wise. Usually, the easiest way to get there is through bonds. E.g. A European with a 70/30 portfolio could be 50% ex-Europe stocks, 20% European stocks, 30% European bonds. If you start to switch out the bonds for Treasuries you start to up volatility a lot in Euro-denominated terms.

It's easy for US-based investors to forget currency risks, because for most of us it's just not a big deal. I'm 60/40 stocks/bonds, 50/50 US/international in stocks, for example, which means in total 70% of my portfolio is in USD (30% stocks, 40% bonds). No real issue there. For someone living in a country with a much smaller stock market cap, currency can be a harder thing to balance w/o hedged funds.
But wouldn't LT US government bonds be on the "other side" of a global portfolio? Maybe you're right, but I'm looking at it in terms of hedging global stocks. If US LT bonds are selling off, volatile in their own right, that would imply the global stock leg of the portfolio is probably doing OK.
The key to this is to think in REAL (after inflation) terms. The exception to your post is a stagflation scenario like the 70s where there is high inflation yet the stock market is not going up.
I know but I'm looking at this in terms of US bonds vs (for example) Euro denominated bonds.

Risk/quality pyramid

US or Japanese bonds
European & other developed bonds
Emerging bonds & developed equities
Emerging equities

Investor wherever they reside in the world should barbell their global equities mostly with US LT bonds (and a smaller amount of bonds denominated in local currency).

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