Many of us here at Weiss have been warning about a bubble in long-term Treasuries so I just wanted to drop you a quick statistic that supports the idea …
Foreigners sold a net $146.8 billion in U.S. assets in January and another $97 billion in February!
If international investors are becoming more cautious on U.S. bonds, the logical conclusion is that rates will have to rise significantly to continue attracting interest. That also implies a big drop in Treasury prices.
When will it happen? It’s anybody’s guess. But I continue to believe that these so-called “safe” investments are anything but.
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{ 9 comments… read them below or add one }
Well, this maybe all true, but I’ve been thru these kinds of situations with my Treasuries before and they make amends shortly thereafter ..
When Inflation hits the Street? LT’s go up into the Mid to High Single figures? Start buying.. and If they go nuts like they did in the Carter Yrs?
Sell everything else you have and buy them..! Even get a 2nd mort. on the house..
How about getting 12% for 30 yrs!
On a per $10k invested basis?: The past 10 yrs, my Treasuries ended up with an ave of over $21,000 value in them.. After last yrs +22%, who cares if it does “0″ or Zippo this yr.. your still +11% apy for the 2 yrs.. and your still in for When ( not if) Inflation Returns next Yr..
Treasuries, Tips and GNMA’s have been and I believe will be still the way to go..
Diversify and you’ll be fine..& 4 Retiress? Just keep 3 yrs of $ needed to pay the bills in Short Term stuff.. 1st yrs $ in your BANKS MMkt, 2nd and 3rd yr in FFRHX and VFSTX.
and sell the FFRHX when it hits +10% and VFSTX Hits +8% and lock it in for yourself..don’t get greedy..
Nilus Mattive Reply:
April 29th, 2009 at 9:49 AM
Hi, Dennis. You’ll get no argument from me on most of what you’re saying. For long-term holders, Treasuries have been a sweet deal. And if/when yields jump (again, I believe they will have to based on less foreign demand and returning inflation) then you’re absolutely right … it will be time to back up the truck.
I just want people to realize that buying right now is anything but safe. I do think it is a favorable time to look at TIPS, and I’ve been saying so for a while …
Nilus
I also agree that mid to high single digit yields on LT Treasuries is the indication to buy. The only problem with that is knowing when to pull the trigger. I am 100% in cash waiting on that day to happen, I just hope I time it right.
Who is to say when they hit 7% that I may talk myself into the notion that they will hit 9% before topping out? And then the Treasuries have a rally and the yield plunges….. It is a tough call, but I think that 7% is the magic number for me.
So when will this happen (if it ever does)? My guess is that it will be a couple of years yet. Your opinion?
Nilus Mattive Reply:
May 5th, 2009 at 9:58 AM
Hi, JR. Right … timing is the problem with an all-or-nothing approach. If you catch it perfectly, the couple years on the sidelines will be worth it. If not, well you could be in cash for a very long time!
To avoid the issue, I think it’s best to start averaging in once you think rates are reasonable enough by historical standards. You won’t get the absolute best total return, but you’ll still be doing pretty darn well. And that avoids the issue of waiting and waiting to catch the exact highest point.
I advocate the same approach when it comes to stocks (or really any other asset class) — dollar-cost averaging, taking profits here and there when things get frothy, rebalancing, easing in and out positions, etc.
Sure, we all want to hit the nail right on the head and put it all on the line when the time is right, but our portfolios will end up just fine with plenty of singles and doubles. The triples and home runs just add a little more oomph.
In terms of timing the yields on Treasuries, I don’t know. My best guess (and that’s all it really is) is similar to yours … another two years out, perhaps. I’m basing that on continued economic weakness for another year, then inflation coming on stronger and the brakes having to get applied via quick interest rate hikes.
Foreign bond buyers are the big wild card, and can either accelerate or decelerate that process.
Hey Nilus. Thanks for the reply. Another opinion question…. how high do you think the yield will go on the long bond? possibly 9-10%? Iknow….. just an opinion, but at least yours is an educated opinion!
Nilus Mattive Reply:
May 7th, 2009 at 5:03 PM
That’s roughly what I was thinking. I wouldn’t be surprised to see those kind of numbers within a few years.
Nilus
No one yet has answered my question on why the Treasury had to bail out investors who were in Primary Reserves “U.S. Treasury Only Money Market” fund.
I thought Martin claimed U.s. Treasury only funds were the safest thing on the planet.
Also I thought all funds were required to keep “separate custodial accounts” for their various money market accounts under the family banner (in this case Reserve). If this were so then the holders of the Reserve’s US Treasury only MM fund should not have been subject to the same risks as those in the Primary Reserve MM fund with the higher yield, and Treasury should not of had to make them whole and they should not of had their moneys placed on hold for withdrawal rights. Correct? But it happened that they were in the same boat as those MM holder’s in the riskier Primary MM fund. It comes down to, “How did the early institutional withdrawals breach the US Treasury holders’ accounts?
I have a file I have kept on this saga, but have yet to find anyone who can answer the question of how this happened?
The point being if it happened at Reserve, then how do I know it won’t happen again at Weiss’ US Treasury only money market account or American Century which he also reco’s.
I just placed my mother’s money in Weiss’ and she is a widow who deserves safety but the question was still raised that it may not be as safe as in Treasury Direct.
She exceeded the $100,000 amount on her US Treasury Direct and did not want to pay the annual account fee with Legacy Direct.
Thanks for the input or answer to this million dollar question.
Tom
Hi, Tom. That’s a great question, and frankly, I didn’t even realize that Reserve’s Treasury-only fund was affected by all the problems.
I will try my best to look into it a little further when I have some time. But I do share Martin’s belief that Treasury-only funds are the safest of the breed … and from what you’re saying, the Treasury fund holders are at least getting back 100 cents on the dollar. The current forecast for Primary holders is more like 97 or 98 cents right now, I believe …
Nilus
Here is the link:
(11/20/08)
Re: so-called safe Treasury Only MM fund accounts. If these are supposedly and required to be in separate custodial accounts…then pray tell why did those people in the Reserve’s US Treasury Only MM require to be bailed out by the $700 B. bail out package?
The story I have been following for sometime at TD Ameritrade is posted at the following site: (11/20/08)
Apparently those people who were in US Treasury Only MM funds were in the same boat as those in the High Yield Reserve MM fund and so what difference would it make if American Century (as one of your US Treasury Only recos) does not have SPIC insurance (which is optional), if their whole company went broke like Reserve’s did? Clarification needed?
What’s the distinction? Why would money in a US Treasuries MM fund account at Reserve, if the accounts were separated custodial maintained as required, be short, right along side and with the various other MM funds within the Reserve family of MM funds?
It seems someone at Reserve would of had to violate custodial account rules with the withdrawal of those first $62 B. of Hedge fund withdrawals, which occurred first, AND breached the otherwise separate custodial account rules of those in the US Treasury Only MM fund…no?
Any insight on this million dollar question?
Thanks Nilus
Tom