Time to buy long-dated Treasury ETF?

Investment Analysis Clubs Macro Economic Trends and Risks
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@Kingran posted on the Falling Knives board about whether this is a good time to buy $TLT which is a long-duration Treasury bond ETF.

Bond prices fall as bond yields rise so the ETF NAV has fallen recently.

I am cross-posting my response to Kingran.

Kingran asked: Are we looking at 6% 10 yr, 30 yr in the near future?

I answered:

@Kingran I have been watching Treasury yields for over 20 years. I’m hesitant about this also.

fred.stlouisfed.org

Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity, Quoted…

Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity, Quoted on an Investment Basis

fred.stlouisfed.org

10-Year Real Interest Rate

10-Year Real Interest Rate

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%.

fred.stlouisfed.org

10-Year Expected Inflation

10-Year Expected Inflation

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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There is zero way I buy long term debt during uncertain times like this. Either through ETFs and funds, or individual bonds.

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The damage on this is done is my view. When US and West freezed Russian foreign assets that made many nations rethink their reserve strategy. Now, add to that what this current administration is doing is not helping. No one is explicitly talking or pushing back. Instead reserve banks are slowly moving away. Reserve bank purchase of Gold used to be around 22 tonne per annum, post Ukraine has jumped to 88 tonne. This was one of the drivers behind the Gold price raise.

Separately, today US debt to GDP is really bad. I see no signs of it getting better.

I hear you on $TLT, my choice of $TLT is primarily because it is easy to trade compared to individual bonds and I am certainly not interested in holding them for a longtime.

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Another way of looking at is, US debt will structurally pay more compared to EU, or other developed nation bonds. The reason I am stating this is, I considered diversifying internationally but realized, EU bonds are actually paying less compared to US.

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Things are extremely whacky right now, and they’re fixin’ to get whackier. TFG’s past performance is the best predicter for his future behavior.

He’s a bankrupting machine. There’s no one better, he’s probably the best at bankrupting companies that the world, no…the universe has ever seen!

I’m no expert in trading US treasuries, but there is a real risk of default. Hyperbole? Fear mongering? We’re living in unprecedented times. Welcome to Bonkersville.

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10-30 year timeframes are too long, for me anyways. But I am watching yields for 2-10 T-notes. I would use these for money that is to be used ( withdrawn ) over that timeframe.
I’m keeping the money that would “normally” be invested in stocks in T-bills, for now. I need to see the current admin reeled in. Congress has completely failed at that so far, they are not even trying. So it looks like the Bond Market is drawing the line in the sand as the “responsible adults” in the room, for now.

I know on Fidelity that you can sell Treasuries, but I have not done this. When/if interest rates are forced down in a recession, 5 or 6% Treasuries would go up in price. So the longer duration Treasuries could be a good investment for capital gains, if this plays out like the GFC did.

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Absolutely. US cannot default. The value of $$ might go low, but US can always print and pay back.

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I agree with @Kingran. There is no chance of default.

The U.S. has never defaulted on a government obligation since 1790. Interest payments to lenders were prioritized over every other obligation. (cf. Alexander Hamilton.) That was before a Federal Reserve existed to conjure fiat money out of thin air.

The U.S. will never default but the price of the debt may sink far relative to today (driving interest rates up).

The idiotic idea of charging foreigners a “tax” on their purchases of Treasury debt would be an implicit default but not an actual default.

Wendy

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I bought 10 year TIPS in October 2008 when their yield was 3% over the inflation rate – the highest in history. As interest rates fell in the following years their price rose. I could have sold them but I chose to hold onto them for the high yield. They couldn’t be replaced after the panic.
Wendy

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Thanks for the reply. Maybe he can’t pull it off, but TFG has clearly said that default is on the table. For all of his countless flaws, he’s pretty good and making the unthinkable happen.

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Default on the money interests? Unlikely. Those are the people who can buy Trump crypto, to gain access. Those are the people who pressured the government to make Fannie and Freddie paper good, even though the prospectus clearly said they were not backed by the government. Those are the people who had AIG bailed out, for their own benefit.

In the private sector, the ways to stiff counterparties are limited. In government, especially in a regime that considers fundamental personal rights something that can be ignored, because they are a burden, the means of electing stiffees are much more varied.

-as “Plan Steve” already pointed out: institute extreme requirements for proof of citizenship to obtain, or retain, benefits. This is already in process, with proposals to require proof of citizenship to change an address or bank account for direct deposit. I fully expect to receive a letter/letters from SS and/or CMS demanding proof of citizenship to continue to receive benefits, within the next 3-4 years. As long as everyone denied benefits is pronounced a “fraud”, the base would be OK with it.

-so far, most of the deportees have been in the low income strata. iirc, in the late 30s, about a quarter of the German Federal budget was covered by property seized from people the regime deported. If the “border czar” raises his sights, like declaring all Muslims a “threat to national security”, and deports them, the government could pocket some serious money. Around here, many Muslims are professionals: lawyers, doctors, educators, small business owners, people who are likely to have significant assets the government can profit off of. As long as everyone who is robbed and deported is not a straight, white, Christian, the base would be OK with it.

Steve

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I hear you. But US cannot default, or even partially default like we will default for Chinese holdings, etc without completely destroying dollar as reserve currency. the moment dollar loses its reserve currency status, US GDP will take a severe hit.

Take Trump seriously, but not literally. Also, behind all that bluster there is a man who is really scarred. It is Trump who unilaterally cut the ridiculous tariff on China, without China making a single concession.

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That’s because he is a 2-year-old toddler with ADHD, not because he “thought” about it in the slightest. As we saw in his first time around, he’s an endless series of disconnected events, no rhyme or reason to any of it.

This time the think tanks and others behind “2025” and similar have taken the levers of power to accomplish their goals. He is a “useful idiot”, and occasionally goes too far for even them, but don’t think he’s masterminding some grand scheme. They are. He’s not. Sometimes even they have to pull him back in.

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I am not talking about you specifically here. This is the standard pattern of democrats to just lash out at Trump. We have seen that made no difference to his political support or within Republican party. If anything, it solidifies his support.

May be it is time to focus on the effects of these radical shifts in policy does to American interests. I heard a great analogy, that is a father asks a son every time he does something bad to hammer a nail in the working bench, and every time he does something good to take it out. After a month, the bench had no nails, the good and bad evened out, but the bench is left with the scars of the nailing.

I wish democrats explain to public in these simple terms that these radical, extreme positions are having a lasting damage to the image of US. Trump term may come to an end by 2028, but US will be here beyond trump’s term. The damage he is causing to the relationship with our allies and other nations will not be wiped away after trump’s term.

This is a very simple message but democrats are not focused on the actions but simply interested in calling him names and lashing out.

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I don’t think this is a completely accurate statement. There has been lots of talk about:

  • Tariffs impacting consumers
  • The breakdown of the rule of law and ignoring judicial orders
  • Sending people to foreign prisons without due process
  • Drastic cuts to the federal workforce and impacts to communities
  • Gutting the Department of Education
  • Targeting law firms and private universities
  • The corruption…OMG there’s so much corruption
  • And on
  • And on
  • And on

Blaming Democrats for the current shenanigans is like blaming someone who gets bullied for having a punchable face.

Shouldn’t we be more focused on forcing those who support all of the flim-flammery to explain themselves?

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Oh, many of us have, to no effect. His followers don’t listen until he speaks.

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This is not “lashing out.” It’s explaining. The guy seriously has the attention span of a 2 year old, and perhaps the understanding as well. I do not try to convince Republicans of that because they do not listen, they will not listen, and in any event it’s almost impossible to reach them anymore anyway. They are siloed up in the Fox News, NewsMax, Facebook algorithms, church friends, and there is no breaking through.

You cannot “predict” someone into believing you. FDR knew war was coming, but the American public would not be convinced, so he worked around the edges as best he could. He started re-arming, he got “Lend-Lease” approved, and so on, but until Pearl Harbor the US public was 90% against going to war.

Churchill had the identical problem in England, and railed against the appeasement of Prime Minister Chamberlain, even as Hitler began sweeping across Europe, taking country after country.

Though it pains me to admit it, James Carville is somewhat right: it has to all fall down before the MAGAts will believe anything bad about their Dear Leader.

I agree that the Democratic crying doesn’t convince them, but then “not crying” won’t convince them either; it will only be when they see the actual effects of the policies (assuming those turn out to be bad) that they may possibly open their eyes.

And I remind you, most never will. Herbert Hoover, I have pointed out before, had a total economic collapse just 6 months into his term, and for 3 1/2 years the economy got worse and worse and worse. Homeless encampments in city parks. People selling pencils in the street. Workers walked around with empty pockets turned inside out and called them “Hoover Flags.” Unemployment hit 25% (in an era when there were very few “second incomes” in a family.)

And in 1932, Hoover still got 40% of the vote. Imagine, voting for the guy whose policies had not changed a thing, and when many you knew were out of work - with no safety net besides.

No, Democrats will howl and Republicans will scoff, and what will be will be. It is only if they get it “good and hard” to repeat a phrase, that something will change.

Personally, I think the Dems moved a little too far left (“defund the police” and “trans rights” the most obvious), but I also believe that the Republicans have managed the most brilliant positioning/marketing campaign ever (“Low taxes” and “patriotism”), even as those things are transparently false to anyone following below the slogans. “Make America Great Again” is one for the most effective phrases I’ve heard in my lifetime, right up there with “Morning in America” and “Thousand Points of Light.” Curiously, all three came from the Republican side of the aisle. Frankly, I can’t think of a single Democratic trope as motivating, except for “We’re not them”, but that only works after a catastrophe (see: Iraq2, Katrina, housing meltdown, etc.)

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Cultural war messaging scapegoated Dems. Period. We should reject excuses given by conservatives to explain why they voted the way they voted. Simple point, Dems also communicated a 2+2=4 message about democracy, the economy, and social safety net programs. Many ignored it. Now they’re surprised? GTFOH.

Adding on, many smart people recognized the risk back in 2015. It was obvious.

If you’re on a METAR board and you’re professing that you didn’t understand the risk in electing a felonius bankruptcy master with a long history of screwing people over…you’re obviously not credible.

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