why are u.s treasuries so cheap

[galway_blow_in]

i know they are more expensive than they have been in decades but the ( TLT etf ) twenty year american goverment bond is paying more than twice as much as german goverment bonds and is also cheaper than french soverign debt

i know QE in europe is contributing to a reduction in yield but surely american treasuries are a far wiser investment right now or am i comparing getting a cold to a flu

 

[Rory Gillen]

And you have to keep that 20-year US Govt Bond for the full 20 years if you are to be sure of getting the circa 2% per annum return it is offering. If you are not sure why that is, then you need to learn about long-dated bonds, the difference between them and short-dated bonds, how each fares in inflationary times. If you don't do that, don't even consider buying a long-dated bond.

Rory Gillen
GillenMarkets.com

 

[galway_blow_in]

And you have to keep that 20-year US Govt Bond for the full 20 years if you are to be sure of getting the circa 2% per annum return it is offering. If you are not sure why that is, then you need to learn about long-dated bonds, the difference between them and short-dated bonds, how each fares in inflationary times. If you don't do that, don't even consider buying a long-dated bond.

Rory Gillen
GillenMarkets.com

I just happened to pick the TLT twenty year bond as an example , ten year or five year u.s treasuries are also cheaper than the equivalent French or german sovereign debt

 

[Rory Gillen]

You are comparing apples with oranges. There is a difference between the yield on US bonds and, say, German Bonds across the duration spectrum (i.e. 1 year, 3 year, 5 year, 10 year and 20 year duration) to reflect investors expectations of the exchange rate risk and future inflationary expectations. It's more complex than saying one is cheaper than the other because one offers a higher yield to maturity than the other.

Rory Gillen
GillenMarkets.com

 

[galway_blow_in]

You are comparing apples with oranges. There is a difference between the yield on US bonds and, say, German Bonds across the duration spectrum (i.e. 1 year, 3 year, 5 year, 10 year and 20 year duration) to reflect investors expectations of the exchange rate risk and future inflationary expectations. It's more complex than saying one is cheaper than the other because one offers a higher yield to maturity than the other.

Rory Gillen
GillenMarkets.com

Germany has long been the ultimate safe haven when it comes to fixed income ( perhaps only Switzerland surpasses ) so that may be a poor example but if you compare the situation of the usa to france for example , I cannot see how French debt is seen as a better buy than American treasuries , regardless of future expectations re_ currency or the likelihood of the fed raising rates

 

[Rory Gillen]

Long-term interest rates are set, normally, by the market. More recently, they are being set by central banks and if the ECB is buying up Eurozone debt it is doing so to bring long-term rates across Europe down, and into unison. Nothing wrong with your view, but you're up against the ECB, which wants long-term rates low in the Eurozone. Is it not better typified by Ireland, an insolvent country with a still sizeable annual government deficit, being able to borrow 10-year money at just over 1%? Without the ECB, Ireland would be paying a lot more to fund itself, which, of course, would stymy any recovery. Is Ireland a better credit risk than the US, clearly not!

 

[galway_blow_in]

Long-term interest rates are set, normally, by the market. More recently, they are being set by central banks and if the ECB is buying up Eurozone debt it is doing so to bring long-term rates across Europe down, and into unison. Nothing wrong with your view, but you're up against the ECB, which wants long-term rates low in the Eurozone. Is it not better typified by Ireland, an insolvent country with a still sizeable annual government deficit, being able to borrow 10-year money at just over 1%? Without the ECB, Ireland would be paying a lot more to fund itself, which, of course, would stymy any recovery. Is Ireland a better credit risk than the US, clearly not!

i appreciate your replies and they are an education when it comes to the soverign debt market , i know a little about equities as ive been investing since 2010 but have never bought bonds , ive heard it said many times that the bond traders are always a better guide to the markets overall as they are the smartest investors of all

 

[galway_blow_in]

ten months later and i sure wish id followed up on my theory , treasures would have proved a tremendous buy

 

[galway_blow_in]

u.s treasuries hit record high on friday

 

[Sarenco]

As our American friends might might say, that's just Monday morning quarterbacking. If you want to trade your instincts, then fire ahead. But don't confuse strategy with outcome.

 

[galway_blow_in]

As our American friends might might say, that's just Monday morning quarterbacking. If you want to trade your instincts, then fire ahead. But don't confuse strategy with outcome.

i recommended treasuries as an investment more than a year ago , what quarterbacking ?

 

[Sarenco]

Fair enough. Perhaps you could consult your crystal ball and tell us what's going to happen over the next 12 months?

 

[galway_blow_in]

Fair enough. Perhaps you could consult your crystal ball and tell us what's going to happen over the next 12 months?

if at first you dont succeed , try try again eh ?

 

[galway_blow_in]

My four year old plus instinct has proven to be spot on

 

[Sarenco]

My four year old plus instinct has proven to be spot on

How's that?

When converted back to euro, the return on a US treasury fund hasn't been dramatically different to the return on a Euro government bond fund over the last four years.

 

[galway_blow_in]

How's that?

When converted back to euro, the return on a US treasury fund hasn't been dramatically different to the return on a Euro government bond fund over the last four years.

Which yields do you think have further to fall?

 

[Sunny]

Which yields do you think have further to fall?

I am going to say both to be honest...….Or maybe it will be the Euro ones. But the US curve could invert again so maybe the 5 year US treasury. But then again maybe the ECB will buy more so I am going to say the Euro ones. But wait, what if the Fed reduces rates and China decides to offload a truck load of US treasuries as part of a trade war....I give up. What's the answer?

 

[Andrew365]

Which yields do you think have further to fall?

All of them.......it is like a domino as the search for positive yields goes on there is less and less available and more slide into negative territories.

 

[galway_blow_in]

All of them.......it is like a domino as the search for positive yields goes on there is less and less available and more slide into negative territories.

Which have further to fall?

 

[Andrew365]

Which have further to fall?

Well if I was to look at the chart in this article Link I would guess the Spanish 10 Yr. I describe it as domino because investors want to match their maturity needs first, 5yr, 10yr etc.

I am assuming institutional longterm bond investors are insruance companies / pension funds needing to match long term liabilities so they are seeking a relatively low risk yield, they Target the least risky countries first. Those yields start declining, they now have to shorter maturity or change country. That is why the riskiest debt in Europe is now pretty much the only yielding positive.

The U.S is a different kettle but is already seeing yields moving down.