Thoughts on bond funds.

[FireFoley]

That’s a silly comment. Extended duration treasurys aren’t limited to 30-year bonds.

You are correct. I was simply using the 30yr. treasury as an example that all treasury rates have fallen like stones. I am well aware that treasury durations go from overnight cash management bills all the way to 30 yr. bonds, and plenty of points in between.

 

[78]

You are correct. I was simply using the 30yr. treasury as an example that all treasury rates have fallen like stones. I am well aware that treasury durations go from overnight cash management bills all the way to 30 yr. bonds, and plenty of points in between.

It goes well beyond that. It extends into the secondary market. There is a robust market in these securities. You’re getting not just the coupon but a big price bump due to the flight to quality AND the 50 bp drop in the overnight lending rate.

 

[Concrete Helmet]

Whoda thunk it....when I saw STRIPS I thought I was buying stock in the local Jiggly Bar...

 

[Concrete Helmet]

Are people just retarded M&th&rf vckers? How in the f vk are long term treasuries losing money? There not f vcking going anywhere for God's f vcking sake....

 

[78]

Are people just retarded M&th&rf vckers? How in the f vk are long term treasuries losing money? There not f vcking going anywhere for God's f vcking sake....

You’re not taking into account all the factors that explain why a bond does what it does.

It’s offered initially at par value, or $1,000 per bond. It matures at a set date in the future, also at par value. If the issuer doesn’t default, you get your $1,000 back plus the interest, called the coupon, that it paid from start to finish.

It’s what happens between issuance and maturity that confuses people. A bond’s price can go up or down depending on changes to interest rates, the economy and the underlying health of the issuer.

Think of it as like buying a rental property.

Properties A and B are both going to pay out 10,000 in gross rent over the next 12 months. Property A costs $100,000 and Property B costs $150,000.

The gross payout, or yield, on A is 10%. The yield on B is 6.66% because it cost more to buy the same income stream.

It’s all about how much the desired income stream costs. In times of distress, higher quality income commands a higher price, and vice versa. When the economic outlook shows signs of improvement, that safe money starts rotating toward riskier corporate bonds in search of more yield. Stocks follow.

Rinse and repeat.

 

[Concrete Helmet]

It’s offered initially at par value, or $1,000 per bond. It matures at a set date in the future, also at par value. If the issuer doesn’t default, you get your $1,000 back plus the interest, called the coupon, that it paid from start to finish.

It’s what happens between issuance and maturity that confuses people. A bond’s price can go up or down depending on changes to interest rates, the economy and the underlying health of the issuer.

I understand why my Corporate stuff is going down but there shouldn't be a safer place for investors to go right now than LT Treasury and STRIPS unless they're looking for income....the ultra low rates right now should mean the strips are being sold at double discount since the coupon is already gone and even the LTT's have to be discounted huge against shorter term rates???

 

[78]

I need to add that the 30-year Treasury Is offered periodically at auction. The yield is determined largely by confidence in the economy. When the yield sinks to levels seen of late, it’s screaming that confidence is waning. Investors are willing to pay more for the safer income stream.

Nevertheless, that same bond fetches the same amount at maturity.

 

[78]

I understand why my Corporate stuff is going down but there shouldn't be a safer place for investors to go right now than LT Treasury and STRIPS unless they're looking for income....the ultra low rates right now should mean the strips are being sold at double discount since the coupon is already gone and even the LTT's have to be discounted huge against shorter term rates???

Strips are zero coupon. No interest is paid. You’re buying a US Treasury sold at a discount that accretes to par value over a long period of time. What you invested in recently was a Strip offered in the secondary market. You bought it on its ascent toward par value.

 

[Concrete Helmet]

Strips are zero coupon. No interest is paid. You’re buying a US Treasury sold at a discount that accretes to par value over a long period of time. What you invested in recently was a Strip offered in the secondary market.

That's what I said....huge discount for no coupon...kinda the opposite of a lender making up front money on a loan....

 

[78]

That's what I said....huge discount for no coupon...kinda the opposite of a lender making up front money on a loan....

Or like a balloon payment, which adds to the yield due to delayed payment. But, yes, a very good analogy.

 

[Concrete Helmet]

Well today was interesting and I've learned another valuable lesson.....never, ever, under any circumstances sit down at 9PM under the influence of about 4 beers too many and play with your investment account when you are pissed off at just about everything in life....

 

[maheo30]

Well today was interesting and I've learned another valuable lesson.....never, ever, under any circumstances sit down at 9PM under the influence of about 4 beers too many and play with your investment account when you are pissed off at just about everything in life....

It's worked out for me so far.

 

[FireFoley]

To @Concrete Helmet your points are valid in normal circumstances, but @78 made some good good points regarding normal vs. abnormal markets. The one thing I learned from 25+ years of being directly involved in this. Sometimes things don;t make sense. I hear you that in distress times, you would think that Treasury's and Gold would rise,. But there is an old saying. When you need or want cash and if you can;t sell what you "Want" to, you Sell what you "Can". If people want or need cash they will sell the good stuff. If institutions need cash to meet loan demand, lines of credit, etc. they might sell treasuries, AAA Munis, etc. Margin calls allow firms to sell what they choose, not necessarily what the customer wants sold. @78 was spot on with his explanations and he has mentioned people are just panicking at times. So sometimes people just want out and they sell EVERYTHING. It can be just that simple sometimes.

 

[FireFoley]

Investors in World Bank’s ‘pandemic bonds’ face big losses due to the coronavirus outbreak

I just came across this article Was unable to post the article but you can look it up. I had no idea these bonds even existed.

 

[78]

To @Concrete Helmet your points are valid in normal circumstances, but @78 made some good good points regarding normal vs. abnormal markets. The one thing I learned from 25+ years of being directly involved in this. Sometimes things don;t make sense. I hear you that in distress times, you would think that Treasury's and Gold would rise,. But there is an old saying. When you need or want cash and if you can;t sell what you "Want" to, you Sell what you "Can". If people want or need cash they will sell the good stuff. If institutions need cash to meet loan demand, lines of credit, etc. they might sell treasuries, AAA Munis, etc. Margin calls allow firms to sell what they choose, not necessarily what the customer wants sold. @78 was spot on with his explanations and he has mentioned people are just panicking at times. So sometimes people just want out and they sell EVERYTHING. It can be just that simple sometimes.

In this highly uncertain environment only the safest of havens get the inflows. Treasurys. It’s going to look oh so different later in the year.

(Always thought it was weird that the plural of “treasury” did not end in “ies.”)

 

[Concrete Helmet]

Yup pulled the plug on my long term and Strips today.....I guess the parties over....On the bright side after selling those I now have a perfect 50/50 stock to money market account ratio....probably just let the stocks fall where they may and take about half the cash and put it in my add on CD at a little over 3%, keep the other half in the MM just to grab some stuff as it hits bottom.....I'm glad I'm only in my mid 50's....I think...

 

[78]

Yup pulled the plug on my long term and Strips today.....I guess the parties over....On the bright side after selling those I now have a perfect 50/50 stock to money market account ratio....probably just let the stocks fall where they may and take about half the cash and put it in my add on CD at a little over 3%, keep the other half in the MM just to grab some stuff as it hits bottom.....I'm glad I'm only in my mid 50's....I think...

Look at your account as a pie. Half risk, half safety. Where are you going to draw from first? If it were now, the safety side. The risk side has time to recover.