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Anyone holding long duration treasuries?

Stocks and Shares ISA , Choosing funds for ISA's, risk factors for funds etc
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teroja
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Anyone holding long duration treasuries?

#402145

Postby teroja » April 6th, 2021, 10:21 pm

Hi!

Anybody making a play on long duration treasuries anticipating that interest rates will be headed lower? I looking to buy some of thsi in my ISA:
https://www.hl.co.uk/shares/shares-sear ... -ucits-etf

Has been taking a beating for a while but has tremendous upside potential if interest rates go down. If there is a crash, the dolalr may spike again and so the currency risk of holding it in pounds in my isa may be super rewarding.

Any disagreements? Any comments?

Hariseldon58
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Re: Anyone holding long duration treasuries?

#402417

Postby Hariseldon58 » April 7th, 2021, 8:10 pm

I think it is hard to take a view on this that is not just an (educated) guess... not sure a forum will provide any help. It’s a bet.

Spet0789
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Re: Anyone holding long duration treasuries?

#402419

Postby Spet0789 » April 7th, 2021, 8:20 pm

I bought a small amount of this ETF quite recently. It's a portfolio diversifier. I hope I don't make money on it as if I do I will probably have lost money overall.

dealtn
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Re: Anyone holding long duration treasuries?

#402420

Postby dealtn » April 7th, 2021, 8:21 pm

Hariseldon58 wrote:I think it is hard to take a view on this that is not just an (educated) guess... not sure a forum will provide any help. It’s a bet.


Agreed. You could almost describe it as having "tremendous downside potential if interest rates go up".

1nvest
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Re: Anyone holding long duration treasuries?

#404930

Postby 1nvest » April 17th, 2021, 12:06 pm

Interest rates/inflation rising being bad for long dated Gilts/Treasuries can be a overstated misconception. Early 1950's for instance when interest rates rose from similar to current levels up to 5% over a handful of years saw 20 year gilt total returns of around a 33% gain over those years. Early 1970's when inflation rose from moderate to very high levels (of the order 25% inflation rate) and 20 year gilts broke even in nominal terms, but obviously a break-even nominal was poor in real terms due to such high/rising inflation; But lower losses than stock total returns, 1972 to 1974 for instance and all-gilt (20 year) at the end of 1974 would have bought around 80% more stock shares than at the start of 1972.

At the long end prices/yields are reflecting the average overall inflation/interest rates that will be evident over those years, spikes in shorter dated circumstances may very well be seen as just a short duration event, such that the yield curve inverts i.e. perhaps 10% short dated, 5% long dated yields because whilst there's high short dated interest rates/inflation that is being seen as just a short duration situation and that the average over the next 20 years will be more like 5% (as a contrived example).

GoSeigen
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Re: Anyone holding long duration treasuries?

#405003

Postby GoSeigen » April 17th, 2021, 10:24 pm

teroja wrote:Hi!

Anybody making a play on long duration treasuries anticipating that interest rates will be headed lower? I looking to buy some of thsi in my ISA:
https://www.hl.co.uk/shares/shares-sear ... -ucits-etf

Has been taking a beating for a while but has tremendous upside potential if interest rates go down. If there is a crash, the dolalr may spike again and so the currency risk of holding it in pounds in my isa may be super rewarding.

Any disagreements? Any comments?


I don't think you'll get much support here, but I think at the right price and sensible allocation your thinking is sound. I supported someone 14 months ago asking a similar question about gilts and got grief for it, but within a month their gilts would have been up 10% or more with equities down 30%. That is the sort of outcome you are interested in, right?

GS

1nvest
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Re: Anyone holding long duration treasuries?

#405018

Postby 1nvest » April 17th, 2021, 11:55 pm

teroja wrote:Hi!

Anybody making a play on long duration treasuries anticipating that interest rates will be headed lower? I looking to buy some of thsi in my ISA:
https://www.hl.co.uk/shares/shares-sear ... -ucits-etf

Has been taking a beating for a while but has tremendous upside potential if interest rates go down. If there is a crash, the dolalr may spike again and so the currency risk of holding it in pounds in my isa may be super rewarding.

Any disagreements? Any comments?

Nominal gilts reflect nominal yields. Index linked gilts/inflation bonds reflect real yields (after inflation). Whilst real yields are mildly negative at present, there's nothing stopping that spiking to highly negative real yields i.e. nominal yields kept low via the BoE printing money to buy treasury issued gilts (and BoE returning all interest paid on those gilts back to the treasury), whilst inflation spikes such that negative real yields spike even more negative and inflation bond prices rise substantially.

The longest dated 'TIP' (inflation bond) is ... gold. Which is like a zero coupon undated inflation bond. Which is my personal preference. 67/33 stock/gold historically worked well. Reduces worst years portfolio losses significantly without dragging the yearly average too much. Lower average, lower volatility (standard deviation in yearly gains) broadly tends to negate the portfolio 'insurance cost'. See this US example

JohnW
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Re: Anyone holding long duration treasuries?

#405582

Postby JohnW » April 20th, 2021, 12:27 pm

1nvest wrote:The longest dated 'TIP' (inflation bond) is ... gold. Which is like a zero coupon undated inflation bond. Which is my personal preference. 67/33 stock/gold historically worked well.

That mix is a great portfolio, but not as great as one which replaced the gold with US intermediate term government bonds. That's with or without rebalancing, and with or without inflation adjustment. And the gold one had more volatility. And long term treasuries did even better. Someone else might find the UK equivalent portfolio. https://www.portfoliovisualizer.com/bac ... sisResults
But the more important point is that gold is not a bond in any sense. A bond is a contract to return an exact amount of your money; gold is like money that jumps around in value. It's a horse of a different colour.

1nvest
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Re: Anyone holding long duration treasuries?

#405638

Postby 1nvest » April 20th, 2021, 5:00 pm

JohnW wrote:
1nvest wrote:The longest dated 'TIP' (inflation bond) is ... gold. Which is like a zero coupon undated inflation bond. Which is my personal preference. 67/33 stock/gold historically worked well.

That mix is a great portfolio, but not as great as one which replaced the gold with US intermediate term government bonds. That's with or without rebalancing, and with or without inflation adjustment. And the gold one had more volatility. And long term treasuries did even better. Someone else might find the UK equivalent portfolio. https://www.portfoliovisualizer.com/bac ... sisResults
But the more important point is that gold is not a bond in any sense. A bond is a contract to return an exact amount of your money; gold is like money that jumps around in value. It's a horse of a different colour.

... unless you count gold as being money. Pre 1972 US and gold/$ were pegged, so it made more sense to hold $ deposited earning interest. When that coupling was broken the $ was no longer backed by anything tangible and masses amounts of $ were printed/spent such that relative to gold the $ currency devalued considerably (price of gold rose substantially).

Similarly during world wars in not knowing the outcome you're better off holding a portable physical asset(s), gold, silver, diamonds, art/painting rolled up into a tube as your currency as you're more assured that post war you'll be able to convert that currency into another prevailing currency that is being used to exchange for goods/services at that time.

But whilst paper currencies/fiat tends to broadly decline over time, its not a consistent motion, sometimes paper currencies can rebound and see its exchange rate into gold currency strengthen (price of gold declines).

Gold has been the most enduring currency. The Pounds done well and dates back to the mid 700's when a Pound was a Saxon pound weight of silver. Other currencies have come and gone.

Harry M. Markowitz back in the 1950's said ... “I should have computed the historical co-variances of the asset classes and drawn an efficient frontier. Instead, I visualised my grief if the stock market went way up and I wasn’t in it–or if it went way down and I was completely in it. My intention was to minimixe my future regret. So I split my contributions 50/50 between bonds and equities.”. Run the co-variances/correlations ..etc. and 50/50 stock/bonds is a good choice when the 'stocks' are split 50/50 UK and US, small and large caps, and 'bonds are split 50/50 10 year gilt and gold. At least for the UK since 1896, US since 1972, Japan since 1972. In the case of Japan the 'lost decades' vanished (J stocks, US stocks, gold, 10 year treasuries) and pretty much compared to others - around 5% annualised real rewards, but with dot com and 2008/9 financial crisis troughs/peaks (but in being more diversified less extreme than for all-stocks).

For a US investor whose currency is already the primary reserve currency perhaps this. For UK investors the FT250 mid cap is small cap in US scale and is characteristic of a equal weighted index, so 50/50 FT250, S&P500 for stock, 50/50 gold and 10 year Gilt ladder.for 'bonds'.


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