Bonds!

[John Hjorth]

16 hours ago, thepupil said:

Just what I have in my 401k, vanguard bond index, boring AF.

 

It is even good for your health  

[tede02]

Well, it looks like the yield party is coming to an end. It has been fun. Glad I locked in some treasuries and CDs north of 5% at a range of maturities. Most will come due over the next 3 years. Bond funds may still offer some opportunities. Total return is working again. Some of the funds I've looked yield over 5% and when you look at the underlying holdings, they average 90-95 of par. 

[gfp]

https://www.cnbc.com/2025/02/06/bessent-says-trump-is-focused-on-the-10-year-yield-wont-push-fed-to-cut-rates.html
 

this sounds to me like Bessent is going to deliberately cut down on supply of the 10 year for refunding to try to manipulate TNX lower.  Not sure that will work but you can bet each refunding announcement will be “benign” - lots of bills!

[wabuffo]

This sounds to me like Bessent is going to deliberately cut down on supply of the 10 year for refunding to try to manipulate TNX lower.  Not sure that will work but you can bet each refunding announcement will be “benign” - lots of bills!

 

Not gonna work.  But yield on 10-year is heading down now despite anything the US Treasury is doing because of the debt ceiling toggling back on on Jan 13th.  No net new issuance of Treasury securities, while deficit spending continues and US economy grows strongly (which needs more US Treasury securities).

 

Bill

[hasilp89]

14 minutes ago, wabuffo said:

This sounds to me like Bessent is going to deliberately cut down on supply of the 10 year for refunding to try to manipulate TNX lower.  Not sure that will work but you can bet each refunding announcement will be “benign” - lots of bills!

 

Not gonna work.  But yield on 10-year is heading down now despite anything the US Treasury is doing because of the debt ceiling toggling back on on Jan 13th.  No net new issuance of Treasury securities, while deficit spending continues and US economy grows strongly (which needs more US Treasury securities).

 

Bill

Bill, if deficit spending were to drop (big if, but say DOGE + higher tax receipts gets us to a balanced budget) economy was growing ok would you expect yields to drop based no need for net new issuance of treasuries (although in that case you'd think the treasury might refund with more notes than bills). I know its a weird hypothetical but trying to see if my understanding of how things work (I'm half way through Wray) is directionally correct.

[Red Lion]

Also a dumb question, but could the Treasury do its own quantitative easing without the Fed? Could it issue short term paper and buy 10 years in the open market to drive the yield down? 

[gfp]

I've finally gone and bought some TLT this morning.  

[Spooky]

On 2/12/2025 at 4:25 PM, gfp said:

I've finally gone and bought some TLT this morning.  

 

Would you share your rationale?

[gfp]

16 minutes ago, Spooky said:

 

Would you share your rationale?

 

I'm just a degenerate trader that needs to pay his bills and keep food on the table 

[TwoCitiesCapital]

On 2/12/2025 at 10:25 AM, gfp said:

I've finally gone and bought some TLT this morning.  

 

 

I sold out of my position about a month ago and replaced it with calls expiring in March. Upped the notional a bit, put a time limit on being right, and took cash out of the position to buy other things that have traditionally had strong seasonality at the moment. 

 

Fingers crossed for a pop by March. 

 

1 hour ago, Spooky said:

 

Would you share your rationale?

 

My rational is rates are attractive relative to inflation, have a good probability of being attractive relative to near/intermediate growth, and are heavily shorted....

[gfp]

Is today the day?  Or do rates shoot higher into the close?  [chart is TLT]

 

Edited February 21 by gfp

[gfp]

[Spooky]

1 hour ago, gfp said:

 

Well played sir.

[rogermunibond]

Careful on the 10 year yields.  The debt ceiling is limiting total Treasury issuance.

 

Meanwhile inflation is perking up.

 

https://www.apolloacademy.com/wp-content/uploads/2025/02/InflationOutlook-022525.pdf

 

If there is comprehensive budget bill passed, and the debt ceiling is raised, issuance in the latter half is going to perk right up.

 

Wall Street was rightly worried about Stagflation under Biden in 2022-23.  I think those Stagflation worries are going to rise up again for late 2025 and into 2026.

Edited February 25 by rogermunibond

[Gregmal]

Nah, inflation is done. Ken Fisher had a good piece on it the other day. Don’t fall for the same rhetoric from the same people whom always see inflation and crisis looming. Had the same exact circus this time last year about it. 
 

We were told of all these things and oh look, oil can’t even hold $70. Tariffs and sanctions and that big ole nothing burger war in Ukraine and all. 

[gfp]

I don't share your worry on inflation, primarily because I don't think the economy will be as strong as the assumptions in that report.  I don't think tariffs are really inflationary in the sense that people assume.  Anything that slows economic activity is ultimately disinflationary.  If the government succeeds in lowering the deficit that will remove stimulus and be disinflationary.

 

I agree that the debt ceiling is contributing to the bond rally.

 

[Paarslaars]

There never was much inflation, just greed and price hiking. Unfortunately Powell does not see it that way so rate cuts will need to wait and the market will go full fear mode.

[TwoCitiesCapital]

We don't need to worry about inflation again until Trump tries to spend his way out of the next recession. 

 

On a secular basis, I expect inflation to be higher than last decade. But not in the next year or two. 

[Gregmal]

Wonder what @Blake Hampton thinks?

[gfp]

He disappeared!  I'm sort of worried about him!

 

Maybe he realized the national debt is just the private sector's total accumulated surplus?

[Gregmal]

https://seekingalpha.com/news/4413666-crude-oil-tumbles-to-ytd-lows-as-tariffs-worries-lead-to-plunging-consumer-confidence#source=first_level_url%3Ahome|section%3Aindices|section_asset%3Alatest_news|line%3A1
 

 

I love how people think tariffs will create inflation! See ya on the long bond suckers!

[Parsad]

37 minutes ago, Gregmal said:

https://seekingalpha.com/news/4413666-crude-oil-tumbles-to-ytd-lows-as-tariffs-worries-lead-to-plunging-consumer-confidence#source=first_level_url%3Ahome|section%3Aindices|section_asset%3Alatest_news|line%3A1
 

 

I love how people think tariffs will create inflation! See ya on the long bond suckers!

 

No, it won't.  It will create a recession.  Cheers!

[Gregmal]

7 minutes ago, Parsad said:

 

No, it won't.  It will create a recession.  Cheers!

Yup. I hate bonds and feel like a pussy do it, but think owning 20-40 year FANG stock debt is pure money here. You get the gradual grind lower plus the 5-6% yield and when shit hits the fan probably 30% upside when the Fed and market participants panic; that can then be swiveled into stonks. First market short I’ve come across where I get paid to have it on. 

[thepupil]

30 minutes ago, Gregmal said:

Yup. I hate bonds and feel like a pussy do it, but think owning 20-40 year FANG stock debt is pure money here. You get the gradual grind lower plus the 5-6% yield and when shit hits the fan probably 30% upside when the Fed and market participants panic; that can then be swiveled into stonks. First market short I’ve come across where I get paid to have it on. 

 

I don't disagree with the idea, but do disagree with the implementation. 

 

Investing in a corporate bond for this trade has a few issues.

 

I will use the MSFT 3.04% of 2062 as an example, currently at $65.8 / 5.1% YTM / 50 bps more than the 2054 30 yr treasury

 

1) if you pay state income tax, then most of your spread will go to that. You'll pay 5-10%+ of the current yield (4.6%), 20-46 bps in state taxes about 40-90% of your miniscule credit spread. Treasuries are not taxable by states/localities. 

 

2). If SHTF, spreads will blow out and (partially) offset your rate pnl. In 2020, 30 year AA bonds went from 88 over to 250 over at the wides. In 2022, spreads went from 90 to 150. On our Microsoft bond, a 100 bp widening is gonna drop that pup from $65 to $55, knocking a full 15% off. To bear this risk in exchange for 50 bps more per year (which you'll pay to the state tax man if you don't live in FL, which you do, but not everyone does), is piggish. forego those 50 bps. 

 

3) Margin treatment: treasuries and treasury futures are better. 

 

4) Liquidity: treasuries and treasury futures are better

 

5) Duration: Fuck the yield. The yield decreases your duration. This bond only has duration of 16. That's pussy shit. Buy options on zero's or tsy futures options. you want more punch than you're gonna get from a coupon bond. 

 

I owns an unhealthy amount of zero coupon bonds in my IRAs. It’s a shame that zero’s tax treatment sucks but that’s why god gave us 1256 contracts and futures/options right?

Edited February 26 by thepupil

[Gregmal]

14 minutes ago, thepupil said:

 

I don't disagree with the idea, but do disagree with the implementation. 

 

Investing in a corporate bond for this trade has a few issues.

 

I will use the MSFT 3.04% of 2062 as an example, currently at $65.8 / 5.1% YTM / 50 bps more than the 2054 30 yr treasury

 

1) if you pay state income tax, then most of your spread will go to that. You'll pay 5-10%+ of the current yield (4.6%), 20-46 bps in state taxes about 40-90% of your miniscule credit spread. Treasuries are not taxable by states/localities. 

 

2). If SHTF, spreads will blow out and (partially) offset your rate pnl. In 2020, 30 year AA bonds went from 88 over to 250 over at the wides. In 2022, spreads went from 90 to 150. On our Microsoft bond, a 100 bp widening is gonna drop that pup from $65 to $55, knocking a full 15% off. To bear this risk in exchange for 50 bps more per year (which you'll pay to the state tax man if you don't live in FL, which you do, but not everyone does), is piggish. forego those 50 bps. 

 

3) Margin treatment: treasuries and treasury futures are better. 

 

4) Liquidity: treasuries and treasury futures are better

 

5) Duration: Fuck the yield. The yield decreases your duration. This bond only has duration of 16. That's pussy shit. Buy options on zero's or tsy futures options. you want more punch than you're gonna get from a coupon bond. 

 

I owns an unhealthy amount of zero coupon bonds in my IRAs. It’s a shame that zero’s tax treatment sucks but that’s why god gave us 1256 contracts and futures/options right?

What if you believe, like I might, that spread vs treasuries collapses? 
 

I play a bit with the options, but don’t really care to try to time this. If my timing is off, I lose money. I’d prefer to just continue investing in totally normal state, including owning stuff that I’d fully expect to get whacked short term.