Trouble With The Curve?
Hardly. This was a good year to be long the long bond.
But this week was time to rotate out of long duration and into something that looks more attractive.
I think the value is in the 5y note. You get 1.65% yield vs 2.77% on the 30 year.
See what other countries' five year paper is yielding:
- France, 21 bps
- Germany, 4 bps
- Italy, 1%
- Portugal, 1.4% (!)
- Japan, 3 bps
If you agree that the USD is the best currency to own right now, then it's doubly strange for U.S. rates to be higher than these other countries'.
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1 comment:
For what it is worth, here is my problem with the 5-year yield.
If long-term interest rates continue to fall over the long-term (a high risk if the long-term trend and interest rates elsewhere are any indications), then it is best to lock in rates as far out as is possible.
I'm speaking as a buy and hold to maturity (bond ladder) saver of course.
Put another way, I wouldn't want to load up on the 5-year treasury, be right over the next 5 years (as rates fell), and then be stuck trying to reinvest the cash I made into treasuries with very low yields at that point.
That said, I have a large long-term bond maturing in January of 2016. For cash flow purposes, I intend to invest that money in a 5-year treasury (since I will need the money in 5 years).
I am not optimistic that I will be getting a good yield at that point. I therefore really hope I am wrong about Yellen's ability to raise interest rates.
Bond ladders are funny that way. I always root for higher interest rates. Always. And yet, each individual bond goes up in price any time interest rates fall. Does me absolutely no good though, since I hold bonds to maturity. Go figure.
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