Today I bought a chunk of WFC.PR.L, and $TLT assuming the yields have peaked. While I also have this nagging feeling, I am catching a falling knife.
Are we looking at 6% 10 yr, 30 yr in the near future?
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Are we looking at 6% 10 yr, 30 yr in the near future?
@Kingran I have been watching Treasury yields for over 20 years. I’m hesitant about this also.
There are some big “ifs” that pressure the Treasury real yield.
If inflation increases due to the tariffs and reduced immigration.
If deficits grow like the CBO is predicting, overwhelming market demand and forcing yields higher (prices lower).
If the U.S. antagonizes foreign buyers, such as China, so they no longer want to buy U.S. Treasuries. Just as important, if the tariff war reduces Chinese imports as intended, so the Chinese don’t have as many trade surplus dollars to invest in Treasuries.
If the Federal Reserve continues to allow its bloated book of Treasuries to roll off (as planned) and doesn’t reverse course and suppress Treasury yields with QE.
Elevated risk premium due to market uncertainty.
The Treasury real yield is currently lower than the pre-2000 norm. I consider the years 1990-2000 to be a “normal” decade because inflation was pretty well-controlled at that time and the market had finally stabilized after recovery from the Volcker shock treatment.
It’s quite reasonable to expect the Treasury real yield to be in the range of 3% instead of under 2%. Then add the factors above.
The market’s inflation expectation is stable at 2.3%.
A real yield of 3% would give a 10YT nominal yield of 5.3%. But the other factors and risk premium could potentially increase the nominal yield to 6%.
I would consider buying individual bonds, collecting the interest and holding to maturity. (Or death, which is likelier for me.) I would not consider buying a bond fund like $TLT because the NAV will fall if the interest rates rise and you may never regain the principal. The longer the fund’s duration the bigger the loss.
I think $TLT may be a falling knife that has further to fall. I don’t necessarily think it would be unwise to gradually build a ladder of individual bonds to hold to maturity.
Wendy
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While, I retained WFCPRL, with $TLT, the reason I preferred it was it is highly liquid for option trading, I wrote calls, let it get called away and then puts, etc. That proved to be a better approach.
Still, wondering whether 10 yr will stay in 4.0 ~ 4.25% range and may not go down much.
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Just wondering, what if 10 yr is at 3% in one year? Don’t know, but
Within Fed there are lot of voices to bring the fed funds rate to 3%, from 4.0% to 4.25%. The current fed funds rate is too restrictive. Bringing this rate down should help the lower end income, etc. How much this will impact 10 yr, will 10 yr come down to 3.5%? or even lower?
Separately, May-22 is the bottom for $TLT, this year 
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The “higher for longer” is so far correct. Are we going to get further rate cuts before the next Fed chair in place? Everyone is debating that, majority thinks, may not be. German, Japan 10 year yields are going up, Gold, and Silver are moving parabolic, all because of the government fiscal situation. While POTUS is screaming for lower rates, but making no effort to cut down the deficits; the congress shares higher blame for the deficit.
If the deficit is going to be at these levels, I don’t see how rates are going to come down. May be, if the market sells off, some folks might move the money to treasuries. For now, I am not seeing 10 year going below 4%.
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Kingran,
A 6% yield on the ten-year note or the long bond? You gotta be kidding. This country is so bankrupt, it can barely afford to service its currently outstanding $38 trillion in debt.
The preferred direction of interest rates for Trump et al is down, down, down to keep the asset bubbles inflated. He’s likely to get his wish in the short-term from his Fed appointment. But “the market” is saying something different. Hence, projections of $200 silver and $10k gold in 2026.
Global central banks haven’t yet started dumping Treasuries. They’re just not rolling them over, and they’re replacing them with hard assets. That’s the trade to be doing.
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First of all, I am not convinced, Trump can force the interest rate down in 10 yr treasuries. Even if Fed cuts rate, it may influence 2 yr, but not 10 yr. Treasuries are a global investment, and the rates will have influence beyond Fed.
I was in metals and stupid got shaken out. So I will have to live with that. 
I also don’t think Trump can force interest rates down. But he does want them to go lower, as does Wall Street. The problem, however, is that lower rates won’t solve the structural problems facing the US, like spending beyond its means at both the public and private levels.
If the US and Euro economies were sound, gold/silver wouldn’t be rallying. But they are, and de-dollarization is increasing. In order to attract buyers for its debt, you’d think that the US would have to raise interest rates. But if it does so, then it will become increasingly unable to service that debt unless/until it decreases/eliminates its deficit spending and its other foolishnesses, like high seas piracy.
Will interest rates go higher on the 10yr and 20yr? Who knows? But even if they do, the rates offered --even before taxes-- won’t cover inflation. So why do that trade when better, easier, safer money can be made elsewhere in markets?
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Along with deficits data center build outs by investment grade issuers are going to flood the market. The chances of rates going down in the near term looks less likely. Now the question is will 30 year hit 6% this year, I am assuming 5% is given.
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This year?!?? If you are that convinced, I assume you are shorting treasuries (or buying inverse ETFs like TBF or TBT). Going from the current 4.185% on the 10-year to 5% in a year will deliver a nice profit. Going to 6% would deliver a heftier profit!
You are changing the duration, I mentioned 30 yrs…
I’m sorry!!! How did I miss that!!! I even quoted it directly.
The 30-year at 5% is pretty close to where it is now (4.838%), so it isn’t so exciting. The reason I focused on the 10 year instead of the 30 year is because the 30 year has less relevancy at this point.
For economy probably 2 year and 10 year has more relevance. For housing 30 year is relevant. I am looking at 30 year to see whether it gets to 6%, at that level UST demand from foreign buyers, MBS purchase by GSE’s, and lastly how the administration going to react to that needs to be seen.
In the past, shocks to the system drives demand for UST, now it is opposite. So, if it gets to 6%, I might use that to increase my long-term fixed income allocation.
From everything I’ve read, the 10 year treasury is much more relevant to housing because the average duration of home loans (including typical 30 year mortgages) is closer to 10 years than to 30 years.
Yields are going down, the $TLT’s that I bought late november are likely to be called by the end of this week. If $TLT gets above $92, I might short. The economic indicators indicate we should be having higher rates. May be SW sell-off caused some folks move into treasuries? How long will they hide there?
If tariff’s are immediately rolled back then it is deflationary. That should give some room for the Fed to cut rates. Shorting may not be a good option.