I also own TLTs. However, the European variant (IE00BSKRJZ44). At the moment I am at minus 15%. However, I also think that the strategy is proving to be the right one in the medium term.
What I still can't understand: why does Finance-Twitter recommend TLTs?
I mean, wouldn't it make more sense to buy two to five 20+ year government bonds directly?
Especially with regard to returns:
TLT: approx. 2.5 %
US912810SX72: approx. 4.5%
Do the potential price increases also seem more interesting.
What am I missing?
Thank you in advance and best regards from Lake Constance in Germany
Hey Andreas, wie geht es dir? It's time for total honesty. As you said, I primarily bought TLT because I have heard a lot of FinTwit talking about it. I have a core thesis about bonds and what I think will happen with interest rates/fed intervention. However, I am new to buying bonds and I don't have all the details worked out perfectly.
My ignorance aside though, here's one thing I think you might be missing in terms of returns. Yes, you can buy the short end of the curve and earn more yield, but you'll make WAY less if interest rates drop. Here's my math. I picked 2% for the following example just because it's a nice round number, I don't really expect 2% interest rates anytime soon.
The last time interest rates were at 2% for the US 30 year, TLT was at $146. To go back to that level from here = price increase of 58%
The last time interest rates were at 2% for the 2 year was March 18th, SHY was at $83. To go back to that level from here = price increase of 3.5%
So which product you buy depends on what you care about. If you only want the yield, then definitely the short end. If you are betting on lower interest rates in the future, then you can make much more money with TLT if you're correct.
Danke der Nachfrage - mir geht es gut :-) Mit 21 Grad im Herbst lässt es sich aushalten.
Thank you for your reply. I absolutely share your assessment and agree with you. In my example mentioned above (ISIN US912810SX72), however, it is also a 30-year bond. In this respect, I wanted to compare TLT (20+ years) directly with a 30 year direct bond.
I believe that we will end up in a deflationary scenario. Probably from 2024 ff. I also see the current environment as a unique opportunity in my life. However, I strive to build up passive income through dividend shares. I think there will be good buying prices next year. However, it would be the easiest way to buy US government bonds. With the current dividend mentioned above, I wouldn't even have to worry about building an ETF portfolio. Government bonds with the yield could then already account for 50% of the portfolio. 4% in a deflationary decade would be very pleasant.
By Alfonso Peccatiello (Alf) in the last article "A Chat With The Top Macro Hedge Funds" I asked the same question.
Furthermore, Jose Zamora Oct 24 has a similar question ->
Quote: "But my question was why do you prefer the ETF rather than buying directly the bond (since the bond will give you back the principal at the end of the bond life); TLT or IEF does not guarantee the principal value back since there is no end."
I agree, that 4% yields in a deflationary environment will be quite nice. Especially given that bond yields will drop to 0% again, if that happens.
In regard to TLT vs buying the bond direct, I think it depends on what your goals are. I believe that we have different time horizons. I'm buying TLT because I think the financial system is going to threaten to blow up at some point in the next 6 to 12 months, the Fed will be forced to pivot and buy bonds and we'll be back to low interest rates in no time. TLT is liquid and easy to sell immediately. Can set a limit order, etc.
Whereas for you, it sounds like you want to hold to maturity? If that's the case then I think that buying the bond is absolutely the correct move. I don't know the exact mechanics of TLT but I'm pretty sure that it won't sustain a 4% yield as it's constantly buying and selling bonds. If you want to lock in that yield, you should definitely buy direct.
I think you should continue to look at O&G, specifically Canadian (revenue USD, expenses CAD). Many are nearing debt free status (by end of Q1 2023), still have extremely low P/E ratios, management committed to investor returns vs. production growth, huge FCF, have great returns at $70WTI and exploration investment has been woefully inadequate over the last ~8 years.
Cool! Thanks for the tip. I've already bought some shares of Inplay Oil Corp, but that's it so far. I'll keep looking at Canadian companies though, it definitely sounds like there's some good opportunities up north of the border.
Canadian oil companies getting beaten up by Trudeau, but if Poilievre wins.... i think canadian oil stocks are going to do great. perhaps this is the opportune time to buy at the bottom?
If there's one thing I've learned it's that trying to pick bottoms is so damn tough (impossible?). I just ask, is the price good now? If so, then I'll start slowly buying. If the price starts to dip a lot more, I'll buy more.
Not only is trying to time the bottom hard, it's bloody stressful! That being said, I think now is a good time for oil equities. Could very well see the price of oil go up once the SPR releases stop and if/when China stops their zero covid bullshit
yes ive been down the rabbit hole in the past few years on how this system works. im now aware of what its called - the eurodollar system
im also hedged in long duration treasuries. no worries, the government will not allow yields to rise further. just watch. we dont have a free market, its a managed market
this is perhaps the biggest lesson I have learned in the past few years of research. its all managed. the system will do what it needs to survive.
Yep. Our glorious leaders will not allow it to blow up. The choice between money printing and systemic collapse is no choice at all. I like to say that the Fed is larping right now. They could have conceivably fixed this mess twenty years ago, not now.
Treasuries are the beating heart of the Eurodollar system. Demand will return, once this forced selloff ends. I'm fairly confident of that.
Thank you for your great contributions.
I also own TLTs. However, the European variant (IE00BSKRJZ44). At the moment I am at minus 15%. However, I also think that the strategy is proving to be the right one in the medium term.
What I still can't understand: why does Finance-Twitter recommend TLTs?
I mean, wouldn't it make more sense to buy two to five 20+ year government bonds directly?
Especially with regard to returns:
TLT: approx. 2.5 %
US912810SX72: approx. 4.5%
Do the potential price increases also seem more interesting.
What am I missing?
Thank you in advance and best regards from Lake Constance in Germany
Hey Andreas, wie geht es dir? It's time for total honesty. As you said, I primarily bought TLT because I have heard a lot of FinTwit talking about it. I have a core thesis about bonds and what I think will happen with interest rates/fed intervention. However, I am new to buying bonds and I don't have all the details worked out perfectly.
My ignorance aside though, here's one thing I think you might be missing in terms of returns. Yes, you can buy the short end of the curve and earn more yield, but you'll make WAY less if interest rates drop. Here's my math. I picked 2% for the following example just because it's a nice round number, I don't really expect 2% interest rates anytime soon.
The last time interest rates were at 2% for the US 30 year, TLT was at $146. To go back to that level from here = price increase of 58%
The last time interest rates were at 2% for the 2 year was March 18th, SHY was at $83. To go back to that level from here = price increase of 3.5%
So which product you buy depends on what you care about. If you only want the yield, then definitely the short end. If you are betting on lower interest rates in the future, then you can make much more money with TLT if you're correct.
Hope that helps a bit.
Danke der Nachfrage - mir geht es gut :-) Mit 21 Grad im Herbst lässt es sich aushalten.
Thank you for your reply. I absolutely share your assessment and agree with you. In my example mentioned above (ISIN US912810SX72), however, it is also a 30-year bond. In this respect, I wanted to compare TLT (20+ years) directly with a 30 year direct bond.
I believe that we will end up in a deflationary scenario. Probably from 2024 ff. I also see the current environment as a unique opportunity in my life. However, I strive to build up passive income through dividend shares. I think there will be good buying prices next year. However, it would be the easiest way to buy US government bonds. With the current dividend mentioned above, I wouldn't even have to worry about building an ETF portfolio. Government bonds with the yield could then already account for 50% of the portfolio. 4% in a deflationary decade would be very pleasant.
By Alfonso Peccatiello (Alf) in the last article "A Chat With The Top Macro Hedge Funds" I asked the same question.
Furthermore, Jose Zamora Oct 24 has a similar question ->
Quote: "But my question was why do you prefer the ETF rather than buying directly the bond (since the bond will give you back the principal at the end of the bond life); TLT or IEF does not guarantee the principal value back since there is no end."
Maybe you have a suitable answer? :)
I agree, that 4% yields in a deflationary environment will be quite nice. Especially given that bond yields will drop to 0% again, if that happens.
In regard to TLT vs buying the bond direct, I think it depends on what your goals are. I believe that we have different time horizons. I'm buying TLT because I think the financial system is going to threaten to blow up at some point in the next 6 to 12 months, the Fed will be forced to pivot and buy bonds and we'll be back to low interest rates in no time. TLT is liquid and easy to sell immediately. Can set a limit order, etc.
Whereas for you, it sounds like you want to hold to maturity? If that's the case then I think that buying the bond is absolutely the correct move. I don't know the exact mechanics of TLT but I'm pretty sure that it won't sustain a 4% yield as it's constantly buying and selling bonds. If you want to lock in that yield, you should definitely buy direct.
I think you should continue to look at O&G, specifically Canadian (revenue USD, expenses CAD). Many are nearing debt free status (by end of Q1 2023), still have extremely low P/E ratios, management committed to investor returns vs. production growth, huge FCF, have great returns at $70WTI and exploration investment has been woefully inadequate over the last ~8 years.
Cool! Thanks for the tip. I've already bought some shares of Inplay Oil Corp, but that's it so far. I'll keep looking at Canadian companies though, it definitely sounds like there's some good opportunities up north of the border.
Canadian oil companies getting beaten up by Trudeau, but if Poilievre wins.... i think canadian oil stocks are going to do great. perhaps this is the opportune time to buy at the bottom?
If there's one thing I've learned it's that trying to pick bottoms is so damn tough (impossible?). I just ask, is the price good now? If so, then I'll start slowly buying. If the price starts to dip a lot more, I'll buy more.
Not only is trying to time the bottom hard, it's bloody stressful! That being said, I think now is a good time for oil equities. Could very well see the price of oil go up once the SPR releases stop and if/when China stops their zero covid bullshit
Your name is the "Unhedged Capitalist" but from your portfolio allocation, I see that you are pretty well hedged! lol
Oh yeah, haha... I'm hedged with US treasuries which always go up when stocks go down right? Woops :D
yes ive been down the rabbit hole in the past few years on how this system works. im now aware of what its called - the eurodollar system
im also hedged in long duration treasuries. no worries, the government will not allow yields to rise further. just watch. we dont have a free market, its a managed market
this is perhaps the biggest lesson I have learned in the past few years of research. its all managed. the system will do what it needs to survive.
Yep. Our glorious leaders will not allow it to blow up. The choice between money printing and systemic collapse is no choice at all. I like to say that the Fed is larping right now. They could have conceivably fixed this mess twenty years ago, not now.
Treasuries are the beating heart of the Eurodollar system. Demand will return, once this forced selloff ends. I'm fairly confident of that.