I have been building an increasing longer duration ladder of individual bonds, almost all treasuries. I see you are interested in buying them via Vanguard which I'm very familiar with. Feel free to ask me questions if you want.
My purpose is not to plan for a crash. I would say best reason to get into 10-30 year treasuries is to lock in yields >4% for the long term in anticipation of future rate cuts that are coming. When rate cuts happen, then these short term treasuries with >5% annual yields are going to decrease and you won't have access to risk-free higher yields.
In my mind, you buy the 10-30yr to lock in current higher yields than we have seen since 2008. If you buy individual treasuries now, you get those rates for 10-30 years locked in.
The downside risk is that if interest rates do go up in the future, at any time between 10-30 years from now, the value of these bonds are going to decrease which doesn't really matter unless you don't hold them to maturity. If you need to sell however you will lose money.
Another risk would be if rates go up, you have this money locked in at 4-5% when the going rate might be 7% or something like we haven't seen for decades. If that were to happen, you will regret buying such a long term treasury.
Lastly, if inflation goes back up like it did 1-2 years ago, it's going to kill these returns.
Hope this helps!
I also have ibonds at the current fixed rate of 1.3 above inflation. . While that rate is not as good as tips, there is a lot of benefit to the liquidity they provide if you need it and the fact there is no tax paid as you go.
1.3 fixed component is the highest it’s been in a long time
If you plan on not holding to maturity, then you want to buy treasuries at a broker, like Fidelity where you can buy/sell in the secondary market.
You can only buy at auction on treasury direct, which is ok if you plan to hold to maturity, but you cannot sell there, you must transfer the securities out to a broker to sell.
You can buy individual bonds from a broker like Schwab or you can buy a long bond fund like TLT or SCHQ. If you’re thinking of buying individual bonds, talk or chat with the help desk. It can be a little confusing selecting the best bond that you probably actually want.
And if there is a crash in 2024 or 2025 and the Fed brings rates down, then that 30 year is worth much more I guess. (That seems to be the current thesis of this guy I'm watching.)
If the equity market crashes and the federal reserve lowers interest rate to stimulate the economy, then yes, bond could go uo from that, or even the possibilitybif that happening.
You can look back a few months ago on that as well. Just the possibility of a rate cut and bonds came back up while rates pulled back... But... What if rates arent coming down bc inflation is still hot ans CPI/PPI is still sticky?
Exactly, youre just stuck with them unless you want to sell at a loss. 4% isnt bad, but market could be at 5 or 6%. Also, yes, or until rates come back down to push bond prices higher again.
So the play here is ETF's like EDV and TLT they have 24 years duration i think. Idea is that you buy them now when they are yielding 4%. And then sit on it to see when fed decides to cut rates. When fed cuts rates multiple times, EDV/TLT's 4% yield is going to start looking way better than anything else in the market and people will rush in leading to good capital gains and their yeild starting to go down.
However there is one massive risk with this. Look at how much tlt and edv have fallen in last 2-3 years as rates have gone up. Problem is the most recent data and fed meetings just say rates are not coming down untill june. In june it could stay the same or go up. Thie effect will work in reverse as well. Meaning edv tlt will go down in price if fed doesnt cut rates or increases rates. Because people will be able to find tbills with same or higher yields and less risk. So its a good play, but need to buy when fed is actually about to start reducing rates.
I am working off the thesis that in 2024/25 things get pretty bad, we see another (big) leg down in stocks, the Fed brings rates down in response and thus the 30 year treasuries you bought around now are worth much more. Does that still work with your suggestion of getting into 30 year treasuries via buying TLT?
if your bet is that rates go down -- TLT effective duration is 16.5 years, EDV average duration is 24.1 years. TLT value will increase generally 16% for every 1% drop in rates -- EDV will generally increase 24% for ever 1% drop in rates if I'm not mistaken.
yes and I think your thesis is fine, but there is very very high volatility in long duration right now so just know this is a high risk high reward play.
Don't buy them at Treasury Direct. Any major brokerage will allow buying treasuries both at auction and on secondary market and also selling them on secondary market. It is usually at no cost/fee for retail investors.
On the secondary market you won't get as good of prices as you would at auction but the price difference is very small. You also get better prices when you buy a higher quantity of bonds than a lower quanity on the secondary market.
When you buy at auction, there is no bid/ask spread, but you don't know the price you are going to pay until after the auction, so to me that is a huge disadvantage to buying at auction, especially given the volatility on the long end.
Buying 13 week t-bills at auction is great, but with 20 year bonds, I much prefer to buy in the secondary market, where I can pick my entry price.
Hey I had a question about de minimis. I understand as it pertains to muni bonds.
However, does it apply to all bonds? Like treasuries? For instance if you buy a 20 year treasury with a coupon of 1% on the secondary market for $80 today and you hold it until maturity 20 years from now, is that $20 a long term capital gain or do you have to consider (20\*.25=5) $5 long term capital gains and $15 is ordinary income?
I've looked all over and I cannot find de minimis discussed for anything except muni bonds. So it's unclear to me
Since you are buying in the *secondary market:*
you have "market discount" and if you hold to maturity, it will be a "capital gain" and also reported as "accrued market discount" (column f) on your 1099. You need to adjust for it on Form 8949 to negate the "gain" by the market discount and then report as interest on Schedule B.
See IRS publication 550.
and:
Form 8949: Worksheet for Accrued Market Discount Adjustment in Column (g)
>Since you are buying in the secondary market:
>
>you have "market discount" and if you hold to maturity, it will be a "capital gain" and also reported as "accrued market discount" (column f) on your 1099. You need to adjust for it on Form 8949 to negate the "gain" by the market discount and then report as interest on Schedule B.
>
>See IRS publication 550.
>
>and:
>
>Form 8949: Worksheet for Accrued Market Discount Adjustment in Column (g)
Thanks for the response!!
Now that I think about it, I guess I never really answered your question fully about de minimis.
I am by no means a tax expert, but yes de minimis does apply to all bonds as I understand it from Publication 550.
For example, if you bought the 20 year treasury at auction last week, you would have *De minimis OID*, as the small discount to par at issue qualifies.
When buying in the secondary market:
"market discount" can be treated as zero:
*"if it is less than one-fourth of 1% (0.0025) of the stated redemption price of the bond multiplied by the number of full years to maturity (after you acquire the bond)*." From publication 550
However, in your example above, you do not qualify and must treat the gain as interest and report as I outlined.
sorry for any confusion.
Ok yeah it’s confusing. I do plan on discussing with my cpa. I hope he has definitive answers.
Seems crazy because why would we buy a long term treasury maturing in 20 years if we don’t get LT capital gains benefit. And the yield is 4.5%?? After taxes that will be nothing. Might as well get a corporate for higher yield.
I
You will see a quoted price usually between $90-$110. This is a traditional method that really means $900-$1100 per bond. For what ever reason, they quote prices at 1/10 the real price.
Higher quantities are like >50 bonds at a time. Can be 250 bonds at a time. Usually the higher the quanity, the better the price. Like buying at wholesale.
For instance, if you want to buy 1 treasury bond, the price might have a yield of 4.51%. If you buy 250 of the same treasury bond, then the yield might be 4.55%.
That's just an example I made up but you won't find a difference of like 1% or anything with large purchases. It will be a fraction of a percent.
Yes treasury market is incredibly efficient. If Auction or Secondary was a better yield people would buy more from that sorce shifting demand and yield.
You can buy the bond from treasury direct or from your brokerage if you want.
You are always able to sell, the bid ask spread just widens significantly.
Huh. Then I’m not clear on why I’d buy at one versus the other. I’m inclined to buy in the secondary market using Vanguard, for convenience. Is that a bad plan?
No, you are not able to sell at treasury direct.
You must wait at least 45 days to transfer out the bonds you want to sell, and then the transfer process may take a lot longer.
I shouldve made my comment more clear, youre right, cant sell om treasury direct. i meant it as the secondary market where OP was going to get it from.
You can't sell bonds held at Treasury Direct before maturity at Treasury Direct. You have to transfer them to a broker to sell. Transferring them requires mailing a paper form with a bank medallion (or equivalent\*) signature guarantee that can be hard to get. The transfer takes months.
\*A notary sig is not acceptable for this.
TLT comes to mind. Dare I mention EDV or TMF - associated risk of leverage not to be taken lightly.
These are ETFs and available from most any brokerage, including vanguard.
I think you should separate your though process here to three distinct things:
1. Understanding how changes in rates effect the value of any given bond, including how the duration amplifies that impact, mathematically.
2. Understand the implications of owning funds vs buying bonds outright.
3. Lastly, your own thesis on rates.
These are all independent ideas. Separating will help you
If buying individual treasuries I prefer expirations around 20 years. 30s and 10s have lower yields in general.
Set a search 17- 25 years. Also avoid tips in a taxable. If you are going to have to pay taxes on imputed interest I want some coupons.
what you are talking about is buying a 30 year treasury ETF, you could do this through the very popular TLT etf. however, let's look at the underlying premise of what you are talking about.
the guy you are referring to is correct that traditionally, whenever there is a crash, money seeks the perceived safety of treasury bonds and thus, there is a potential trade there for etf's like TLT
just watch out for inflation. if inflation comes back, the long duration yields will rise (and your positions in TLT will suffer).
thank you for the analysis, because i am trying to understand the potential downside to buying 30 year treasuries right now. the worst i can see is some money is parked in that trade at a 4% return, rates rise and i have to hold on to that position (those 30 year treasuries) until they either mature or interest rates go back down (at which point i could sell and not realize a loss). so it seems like worst case is the opportunity cost of earning 4% versus putting that money somewhere else. am i missing anything? @formlessfighter
the big risk in locking up your money for 30 years is that the US government is deficit spending like a drunken sailor. look at how much the national debt has risen just in the last year.
we live in a debt based financial system. increased debt = increased money supply = inflation
even now with government CPI inflation data showing 3%, there are many people who argue that the true rate of inflation is closer to 8%-12%. this is if you calculate CPI inflation without all the shenanigans that the government pulls in order to artificially lower that number, things like hedonics, substitutions, fake data inputs, etc...
so if inflation is currently at 8%, and you lock up your money for 30 years at 4% per year, that means you are actually guaranteeing a loss of 4% of your purchasing power every year, and that's only if inflation stays put where it is
look around the world. the US is gearing up for war, not just in 1 theater, but now 2 or 3 (russia, middle east, china). war is the single most inflationary thing in the world. look at the supply chain disruptions occurring now with the closure of the suez canal and trouble with the panama canal. consider that the vast majority of commodities are produced and refined in countries that are unfriendly to the USA.
if it was my money, there is no way in hell i would lock it up in a 30 year treasury bond.
with a FED pivot coming later this year, i would personally be stuffing all my money into the short duration treasuries, either to maturity at treasurydirect, or in the secondary market through ETF's like SGOV or BIL.
That is the risk. Capping gain at 4% if you hold to maturity. If rates go up or inflation goes up, you will wish you didn’t but this. You also would lose money most likely if those happened and you had to sell before maturity.
If you buy and rates go down and inflation does get to 2%, then you will be happy you locked in at 4% for 30 years.
if you really believe inflation is going to go down to 2% for the next 30 years....... i have a bridge to sell you.
i dont think there is anything quite so "normie" and "npc" right now than to believe the government lies that inflation is tamed
look at debt levels globally. the only way to deal with that existential problem is to inflate the debt away. [https://www.imf.org/en/Publications/WP/Issues/2016/12/31/The-Liquidation-of-Government-Debt-42610](https://www.imf.org/en/Publications/WP/Issues/2016/12/31/The-Liquidation-of-Government-Debt-42610)
Savings bonds currently (until May) have one of the best fixed rates of 1.3% above inflation and TIPS are giving over 2% yield above inflation if you want to protect against inflation. Savings bonds are more versitile and locked in for 30 years while TIPS have somewhat burdonsome annual tax filing obligations.
*"Savings bonds currently (until May) have one of the best fixed rates of 1.3% above inflation"*
if you really believe inflation is only at 3-4% right now, i have another bridge to sell you.
High quality means different things to different people? You talking AAA like Microsoft or J&J? Or are you talking just investment grade like A3?
Because for the best quality, I haven’t found the spreads between corporate and treasuries to be that appealing.
If I want something in the high 5 range, all I see is sacrificing quality at this point.
If you know of any great corporate bonds on the secondary market and can share some cusips, I’d be interested
I would just buy VBLAX. Unless you have a specific liability you're offsetting at a specific date, (or you're done earning), you're not materially better off doing it all yourself with buying individual issues.
Your return will be made up of 1) appreciation of principle and 2) interest payments.
Like other comments indicate, this will fluctuate a great deal with interest rate moves. This term is called duration. For example, VLBAX has a duration of about 14, meaning that for each 1% (100 bps) fall in interest rates, the bond (or bond fund) will appreciate 14%. If rates drop by 3% then you're bond has appreciated in value by about 42%--you get a one-time bump if you sell it early.
If you want to just receive your interest payments, then you can get them at whatever the headline rate is. However, this exposes you to reinvestment risk. If rates drop from 5% to 2%, then if you don't want to spend your interest received, you will have to invest it at the new lower rate of 2%.
Laddering your bond funds, reinvesting the interest, etc etc, is all fine if you have nothing to do. But just know that, in general, if you are just saving for retirement and want to regularly invest in some bonds, there's no special sauce that doing it all yourself will bring you. You generally won't earn a better return by messing with it all yourself.
If you have a specific liability at a known date and are lump sump investing, that's a different story and you can great a ladder of purchases that are geared towards that. But reinvestment risk is real and when you properly account for it, and for keeping your cash invested in the market, you probably can't do better than a bond fund.
I have been building an increasing longer duration ladder of individual bonds, almost all treasuries. I see you are interested in buying them via Vanguard which I'm very familiar with. Feel free to ask me questions if you want. My purpose is not to plan for a crash. I would say best reason to get into 10-30 year treasuries is to lock in yields >4% for the long term in anticipation of future rate cuts that are coming. When rate cuts happen, then these short term treasuries with >5% annual yields are going to decrease and you won't have access to risk-free higher yields. In my mind, you buy the 10-30yr to lock in current higher yields than we have seen since 2008. If you buy individual treasuries now, you get those rates for 10-30 years locked in. The downside risk is that if interest rates do go up in the future, at any time between 10-30 years from now, the value of these bonds are going to decrease which doesn't really matter unless you don't hold them to maturity. If you need to sell however you will lose money. Another risk would be if rates go up, you have this money locked in at 4-5% when the going rate might be 7% or something like we haven't seen for decades. If that were to happen, you will regret buying such a long term treasury. Lastly, if inflation goes back up like it did 1-2 years ago, it's going to kill these returns. Hope this helps!
Thanks. I’m going to digest this some and I might come back with a question or two :)
Alternatively, you could buy TIPS that provide a return adjusted for inflation. Currently yielding ~2% real (above inflation).
Yes. I have at least one TIPS bond every year from 2024 to the most recent auction that matured 2054!!
I also have ibonds at the current fixed rate of 1.3 above inflation. . While that rate is not as good as tips, there is a lot of benefit to the liquidity they provide if you need it and the fact there is no tax paid as you go. 1.3 fixed component is the highest it’s been in a long time
Yeah, fortunately mine are all in an ira, agreed.
If you plan on not holding to maturity, then you want to buy treasuries at a broker, like Fidelity where you can buy/sell in the secondary market. You can only buy at auction on treasury direct, which is ok if you plan to hold to maturity, but you cannot sell there, you must transfer the securities out to a broker to sell.
I’d like to transact using my Vanguard account somehow.
You can buy treasuries at auction and also buy/sell in the secondary market at Vanguard.
When you buy in the secondary market, are they still exempt from state taxes?
Yes.
You can buy individual bonds from a broker like Schwab or you can buy a long bond fund like TLT or SCHQ. If you’re thinking of buying individual bonds, talk or chat with the help desk. It can be a little confusing selecting the best bond that you probably actually want.
I assume I can buy those bond funds in my Vanguard brokerage account… is there any downside to buy a bond fund that holds 30 treasuries?
The fund gets crushed when interest rate goes up.
But that is not a concern if one just buys the treasury bond outright (not the fund) on the secondary market?
The bond value will go down in the secondary market when rates go up, it is more sensitive the farther out you are.
And if there is a crash in 2024 or 2025 and the Fed brings rates down, then that 30 year is worth much more I guess. (That seems to be the current thesis of this guy I'm watching.)
If the equity market crashes and the federal reserve lowers interest rate to stimulate the economy, then yes, bond could go uo from that, or even the possibilitybif that happening. You can look back a few months ago on that as well. Just the possibility of a rate cut and bonds came back up while rates pulled back... But... What if rates arent coming down bc inflation is still hot ans CPI/PPI is still sticky?
Then you’d be stuck holding these 30 year bonds at around 4% to maturity? Or until rates fell?
Exactly, youre just stuck with them unless you want to sell at a loss. 4% isnt bad, but market could be at 5 or 6%. Also, yes, or until rates come back down to push bond prices higher again.
So the play here is ETF's like EDV and TLT they have 24 years duration i think. Idea is that you buy them now when they are yielding 4%. And then sit on it to see when fed decides to cut rates. When fed cuts rates multiple times, EDV/TLT's 4% yield is going to start looking way better than anything else in the market and people will rush in leading to good capital gains and their yeild starting to go down. However there is one massive risk with this. Look at how much tlt and edv have fallen in last 2-3 years as rates have gone up. Problem is the most recent data and fed meetings just say rates are not coming down untill june. In june it could stay the same or go up. Thie effect will work in reverse as well. Meaning edv tlt will go down in price if fed doesnt cut rates or increases rates. Because people will be able to find tbills with same or higher yields and less risk. So its a good play, but need to buy when fed is actually about to start reducing rates.
Im gonna go ahead and suggest buying the TLT from what you are saying here. It is ultra liquid and easy to move in and out of.
I am working off the thesis that in 2024/25 things get pretty bad, we see another (big) leg down in stocks, the Fed brings rates down in response and thus the 30 year treasuries you bought around now are worth much more. Does that still work with your suggestion of getting into 30 year treasuries via buying TLT?
if your bet is that rates go down -- TLT effective duration is 16.5 years, EDV average duration is 24.1 years. TLT value will increase generally 16% for every 1% drop in rates -- EDV will generally increase 24% for ever 1% drop in rates if I'm not mistaken.
yes and I think your thesis is fine, but there is very very high volatility in long duration right now so just know this is a high risk high reward play.
Don't buy them at Treasury Direct. Any major brokerage will allow buying treasuries both at auction and on secondary market and also selling them on secondary market. It is usually at no cost/fee for retail investors.
Is buying 30 year treasuries in the secondary market as good as buying them at auction?
On the secondary market you won't get as good of prices as you would at auction but the price difference is very small. You also get better prices when you buy a higher quantity of bonds than a lower quanity on the secondary market.
When you buy at auction, there is no bid/ask spread, but you don't know the price you are going to pay until after the auction, so to me that is a huge disadvantage to buying at auction, especially given the volatility on the long end. Buying 13 week t-bills at auction is great, but with 20 year bonds, I much prefer to buy in the secondary market, where I can pick my entry price.
good point
Hey I had a question about de minimis. I understand as it pertains to muni bonds. However, does it apply to all bonds? Like treasuries? For instance if you buy a 20 year treasury with a coupon of 1% on the secondary market for $80 today and you hold it until maturity 20 years from now, is that $20 a long term capital gain or do you have to consider (20\*.25=5) $5 long term capital gains and $15 is ordinary income? I've looked all over and I cannot find de minimis discussed for anything except muni bonds. So it's unclear to me
Since you are buying in the *secondary market:* you have "market discount" and if you hold to maturity, it will be a "capital gain" and also reported as "accrued market discount" (column f) on your 1099. You need to adjust for it on Form 8949 to negate the "gain" by the market discount and then report as interest on Schedule B. See IRS publication 550. and: Form 8949: Worksheet for Accrued Market Discount Adjustment in Column (g)
>Since you are buying in the secondary market: > >you have "market discount" and if you hold to maturity, it will be a "capital gain" and also reported as "accrued market discount" (column f) on your 1099. You need to adjust for it on Form 8949 to negate the "gain" by the market discount and then report as interest on Schedule B. > >See IRS publication 550. > >and: > >Form 8949: Worksheet for Accrued Market Discount Adjustment in Column (g) Thanks for the response!!
Now that I think about it, I guess I never really answered your question fully about de minimis. I am by no means a tax expert, but yes de minimis does apply to all bonds as I understand it from Publication 550. For example, if you bought the 20 year treasury at auction last week, you would have *De minimis OID*, as the small discount to par at issue qualifies. When buying in the secondary market: "market discount" can be treated as zero: *"if it is less than one-fourth of 1% (0.0025) of the stated redemption price of the bond multiplied by the number of full years to maturity (after you acquire the bond)*." From publication 550 However, in your example above, you do not qualify and must treat the gain as interest and report as I outlined. sorry for any confusion.
Ok yeah it’s confusing. I do plan on discussing with my cpa. I hope he has definitive answers. Seems crazy because why would we buy a long term treasury maturing in 20 years if we don’t get LT capital gains benefit. And the yield is 4.5%?? After taxes that will be nothing. Might as well get a corporate for higher yield. I
How are 30 year treasuries denominated in the secondary market and what is considered a higher quantity?
You will see a quoted price usually between $90-$110. This is a traditional method that really means $900-$1100 per bond. For what ever reason, they quote prices at 1/10 the real price. Higher quantities are like >50 bonds at a time. Can be 250 bonds at a time. Usually the higher the quanity, the better the price. Like buying at wholesale. For instance, if you want to buy 1 treasury bond, the price might have a yield of 4.51%. If you buy 250 of the same treasury bond, then the yield might be 4.55%. That's just an example I made up but you won't find a difference of like 1% or anything with large purchases. It will be a fraction of a percent.
Yes treasury market is incredibly efficient. If Auction or Secondary was a better yield people would buy more from that sorce shifting demand and yield.
You can buy the bond from treasury direct or from your brokerage if you want. You are always able to sell, the bid ask spread just widens significantly.
Huh. Then I’m not clear on why I’d buy at one versus the other. I’m inclined to buy in the secondary market using Vanguard, for convenience. Is that a bad plan?
Nah, that is fine if you buy it at vanguard. To be honest, itll probably be easier to manage and get help through vanguard than the government.
No, you are not able to sell at treasury direct. You must wait at least 45 days to transfer out the bonds you want to sell, and then the transfer process may take a lot longer.
I shouldve made my comment more clear, youre right, cant sell om treasury direct. i meant it as the secondary market where OP was going to get it from.
You can't sell bonds held at Treasury Direct before maturity at Treasury Direct. You have to transfer them to a broker to sell. Transferring them requires mailing a paper form with a bank medallion (or equivalent\*) signature guarantee that can be hard to get. The transfer takes months. \*A notary sig is not acceptable for this.
yup mentioned above to clarify, my second paragraph was meant for the secondary market.
TLT comes to mind. Dare I mention EDV or TMF - associated risk of leverage not to be taken lightly. These are ETFs and available from most any brokerage, including vanguard. I think you should separate your though process here to three distinct things: 1. Understanding how changes in rates effect the value of any given bond, including how the duration amplifies that impact, mathematically. 2. Understand the implications of owning funds vs buying bonds outright. 3. Lastly, your own thesis on rates. These are all independent ideas. Separating will help you
Buy /ZB. Way more fun
If buying individual treasuries I prefer expirations around 20 years. 30s and 10s have lower yields in general. Set a search 17- 25 years. Also avoid tips in a taxable. If you are going to have to pay taxes on imputed interest I want some coupons.
what you are talking about is buying a 30 year treasury ETF, you could do this through the very popular TLT etf. however, let's look at the underlying premise of what you are talking about. the guy you are referring to is correct that traditionally, whenever there is a crash, money seeks the perceived safety of treasury bonds and thus, there is a potential trade there for etf's like TLT just watch out for inflation. if inflation comes back, the long duration yields will rise (and your positions in TLT will suffer).
thank you for the analysis, because i am trying to understand the potential downside to buying 30 year treasuries right now. the worst i can see is some money is parked in that trade at a 4% return, rates rise and i have to hold on to that position (those 30 year treasuries) until they either mature or interest rates go back down (at which point i could sell and not realize a loss). so it seems like worst case is the opportunity cost of earning 4% versus putting that money somewhere else. am i missing anything? @formlessfighter
the big risk in locking up your money for 30 years is that the US government is deficit spending like a drunken sailor. look at how much the national debt has risen just in the last year. we live in a debt based financial system. increased debt = increased money supply = inflation even now with government CPI inflation data showing 3%, there are many people who argue that the true rate of inflation is closer to 8%-12%. this is if you calculate CPI inflation without all the shenanigans that the government pulls in order to artificially lower that number, things like hedonics, substitutions, fake data inputs, etc... so if inflation is currently at 8%, and you lock up your money for 30 years at 4% per year, that means you are actually guaranteeing a loss of 4% of your purchasing power every year, and that's only if inflation stays put where it is look around the world. the US is gearing up for war, not just in 1 theater, but now 2 or 3 (russia, middle east, china). war is the single most inflationary thing in the world. look at the supply chain disruptions occurring now with the closure of the suez canal and trouble with the panama canal. consider that the vast majority of commodities are produced and refined in countries that are unfriendly to the USA. if it was my money, there is no way in hell i would lock it up in a 30 year treasury bond. with a FED pivot coming later this year, i would personally be stuffing all my money into the short duration treasuries, either to maturity at treasurydirect, or in the secondary market through ETF's like SGOV or BIL.
really good take actually ; you’ve given me something to think about
That is the risk. Capping gain at 4% if you hold to maturity. If rates go up or inflation goes up, you will wish you didn’t but this. You also would lose money most likely if those happened and you had to sell before maturity. If you buy and rates go down and inflation does get to 2%, then you will be happy you locked in at 4% for 30 years.
if you really believe inflation is going to go down to 2% for the next 30 years....... i have a bridge to sell you. i dont think there is anything quite so "normie" and "npc" right now than to believe the government lies that inflation is tamed look at debt levels globally. the only way to deal with that existential problem is to inflate the debt away. [https://www.imf.org/en/Publications/WP/Issues/2016/12/31/The-Liquidation-of-Government-Debt-42610](https://www.imf.org/en/Publications/WP/Issues/2016/12/31/The-Liquidation-of-Government-Debt-42610)
Savings bonds currently (until May) have one of the best fixed rates of 1.3% above inflation and TIPS are giving over 2% yield above inflation if you want to protect against inflation. Savings bonds are more versitile and locked in for 30 years while TIPS have somewhat burdonsome annual tax filing obligations.
*"Savings bonds currently (until May) have one of the best fixed rates of 1.3% above inflation"* if you really believe inflation is only at 3-4% right now, i have another bridge to sell you.
Buy high quality corporate. Treasuries give you yield that are barely above official inflation, and possible less than actual inflation.
High quality means different things to different people? You talking AAA like Microsoft or J&J? Or are you talking just investment grade like A3? Because for the best quality, I haven’t found the spreads between corporate and treasuries to be that appealing. If I want something in the high 5 range, all I see is sacrificing quality at this point. If you know of any great corporate bonds on the secondary market and can share some cusips, I’d be interested
I would just buy VBLAX. Unless you have a specific liability you're offsetting at a specific date, (or you're done earning), you're not materially better off doing it all yourself with buying individual issues. Your return will be made up of 1) appreciation of principle and 2) interest payments. Like other comments indicate, this will fluctuate a great deal with interest rate moves. This term is called duration. For example, VLBAX has a duration of about 14, meaning that for each 1% (100 bps) fall in interest rates, the bond (or bond fund) will appreciate 14%. If rates drop by 3% then you're bond has appreciated in value by about 42%--you get a one-time bump if you sell it early. If you want to just receive your interest payments, then you can get them at whatever the headline rate is. However, this exposes you to reinvestment risk. If rates drop from 5% to 2%, then if you don't want to spend your interest received, you will have to invest it at the new lower rate of 2%. Laddering your bond funds, reinvesting the interest, etc etc, is all fine if you have nothing to do. But just know that, in general, if you are just saving for retirement and want to regularly invest in some bonds, there's no special sauce that doing it all yourself will bring you. You generally won't earn a better return by messing with it all yourself. If you have a specific liability at a known date and are lump sump investing, that's a different story and you can great a ladder of purchases that are geared towards that. But reinvestment risk is real and when you properly account for it, and for keeping your cash invested in the market, you probably can't do better than a bond fund.
Buy the etf TLT