The real bond math: Rates go up -> The US government needs more money to pay the interest -> More bonds are issued (as nobody is raising taxes) -> Rates need to go up even more. (Though it's not something I'd expect Harvard graduates to understand). This super safe TLT is down from 170 to 83. At inception in 2003 it was 89. What a great business to lend money to the US government. I suppose the same people who expected a rally at 112 are expecting it now. Ps: Mom and pops don't even know what a bond is and even if they do they are too busy trying to save enough for food than buying bonds. Rates need to be 15-20% for people to forgo consumption for saving. Nobody today starts saving because they get this amazing 5%. People are willing to pay 25% interest for a credit card loan. So that's where things are.
It drives me crazy when I tell people to pay down their 20% credit card debt with their savings that makes 1% or even 5%. They won't do it because they say they might need it for an emergency. The credit card companies figured out this glitch in human nature and are getting rich off it.
Too good to be true. Maybe the chances for a 100bp drop is 20% and for a 100bp rise is 80%. Then your expected returns change completely than if you just assume 50/50.
I remember watching this video when it first came out. TLT was in the $80's and I passed thinking it was a bad bet. These investors were all saying TLT will rise when the Fed cuts rates. The fed didn't cut rates but TLT went up to over $100. The Fed then cut 0.5 basis and now TLT is dropping, currently at $95. I give up. Thanks
Always thought provoking and informative :) What about taking the yield less inflation and then comparing the net results... ie the "true" rate of return????
I still get my monthly dividends posted to my account. Eventually the price will rise with lowering interest rates. The government debt can’t be serviced on a longterm basis at the current rate
The government doesn't really decide at what rate they can service the debt. The buyers of the debt do. They may start to require higher rates for taking on the risk of holding govt promises for 30 years.
I think FED will keep rate up there (not necessary higher) for as long as they can, so i put all $$ into TLTW, get 15-18% dividend (pay monthly), use that to buy TLT month after month, then slowly switch TLTW money back to TLT, when Fed start to cut rate? Anyone doing the same??
Could buy long dated treasuries in 1980 close to a 15% yield. That was the real opportunity not at less than 5%. Given the lack of demand coupled with the enormous level of debt to be financed I'm afraid there will be more pain than gain in TLT.
The only thing is the U.S. is stuck, can't survive on higher interest rates because of the record "34 trillion". Raise any further, and the interest payments to service their debt becomes unmanageable. Lets see how many banks go belly up if they dare raise interest rates further. Rates are stuck in a game of chicken. TLT is not necessarily a bad bet. Stocks or TLT?
Hello, nice to meet you. I was actually looking for some information about TLT and came across your video. First of all, thank you very much, a short and effective video. Secondly, I have a question for you, when the price of the bond increases, the yield decreases and vice versa. How is it possible that in 2020, when there was Corona and the Fed lowered the interest rate to 0%, the price of TLT simply crashed? Wasn't the TLT supposed to come up at the time? Thanks in Advance
Thanks for the question. If you look at a chart of TLT from 2019 to now, you see that the price did not crash in 2020. By the end of 2020 it was still around $160. Even if the Fed Funds rate is 0%, the rate (and price) on the 20 Year Treasuries (TLT) do not necessarily follow what short term rates are doing. It is more of an expectation of where long term rates are going. Long term rates are supposed to consist of short term rates plus term premium. Term premium has just now gone above 1% point when it was a lot lower for years.
Thanks for the interesting video. I guess making a bit more than 3% on dividends while waiting for the price of TLT going up is not the worst investment option. Unless you need to sell it soon! lol
Just this week I started buying TLTW my thought is it pays 18% in premium that will offset any potential further move down over the coming months worst case scenario, in a up trend I could earn 2/3 of the price appreciation and the premium potentially best case scenario of over 40% that’s 24% from price and 18% from premium in a perfect world. Any thoughts ?
I am not familiar with this. Looking it up I see it holds about 96% in TLT and the rest in short calls. It is down from $40 in Sept 2022 to about $26 now. So even with the call income it has still lost money. There is no free lunch. Warren Buffett has returned 20% annually his whole career. Is it really possible that you can make an easy 18% on this every year? If that was a sure thing, I would just put my money in that and not worry about the stock market (I'm not saying you should do this). The calls expire worthless when TLT is heading lower, but when it is heading higher (interest rates going lower), you will cap the upside with the calls. Really understand how this thing might move in different interest rate environments. Maybe look at some other covered call ETFs that have a longer history.
Wonderful thanks for replying.. a couple of items to add ishares owns TLT etf so it writes calls on it 2% over current price every month that means you will get max 2% appreciation if TLT is going up, if it jumps 5% you will only get the 2% plus the premium roughly 1.5% per month or 18% per year. I am not worried about looking a little here or there, the Fed rate cuts tend to span 1 to 2 year they don’t move that fast. This is a new fund not been around long if you look at the dividend history it is on track for 18% my thought if TLT dropped -10-15% the premium would cover that but not anything more serious like -30%
Fed rates have been very low for the last 15 years till early last year. So were the bonds all that time also CDs & saving accounts, have been crap. Was your bond valuation based on keeping the bond to maturity or selling before that? Cause the US bonds will pay the principle back with out losses. But if you sell early then you might lose a bit. Right?
The calculator I used figure the current market price of the bond. Yes, if you hold it to maturity you get the full face value. But in the mean time, you are getting a lower coupon than current rates which means you are losing to inflation. That $100 face value you get at the end of 30 years is worth a lot less when rates are at 6% instead of the 5% you bought them at.
Yes if the US could afford to have rates at 6% for 30 years the dollar will be worth nothing anyhow. Like you said over $800 a day in interest as is. The FED will drop the rate back down to near 0% & keep deficit spending like always.@@FinanciallyAware
Rate cuts will come. And now there is no risk with tlt bonds I think. Fed will decrease the interest rates by 25 or 50 points and that’s good for tlt etf
Okay so what you said right before the 2-minute mark, it is the popular narrative but it also doesn't make sense. If you're sinking record amounts of money into anything you move the price up. The price of TLT has been going down which means if that narrative is true there are a lot of funds leveraged short against it. They have to cover at some time. It's possible the smart ones have started with that rapid move we saw from 83 to 88. Personally speaking being long TLT I don't think is that attractive but shorting puts with at least a year of time, I like that trade. It's simply a bet on rates not going meaningfully higher, how quickly they come down, it doesn't matter that much.
Saying you don't lose until you sell is a cope to keep a losing position. Same with the banks. If they are holding 30 Year Bonds yielding 2% or so, they are losing to inflation by not getting the current interest rates.
@@FinanciallyAwarebonds have had smaller yields than current yields for the last decade. With your logic anyone who bought a bond in the last decade was “loosing to inflation”. If the half the yield was good enough for billions in purchases during the last decade, it’s certainly good enough now.
Completely switching gears will see what the PM market does with this latest rate increase. Gold May hit an all time high will it bring on panic buying? Real money now could be in cryptos
There is no evidence that government borrowing needs affect long-term interest rates in US Treasuries. The bonds are priced by long-term growth & inflation expectations and nothing more than that.
TLT will spike , even if fed raises rate 1% more this will be ard 80 at most. If fed cuts this yr , to 3% this will be 120 , easy money. Listen to the fed. They will cut . This is free money
This didn’t age well. The best one month rally in the history of Bonds occurred after this video. What you called “sinking money into” was averaging down.
I said I did not think 30 year bonds would peak at 5%. They have fallen down to 4%. Was that the top for rates? I don't know. Either way, averaging down into losers is a sure way to take huge losses. If you were averaging in TLT earlier in the year from around 110, that means you let it go against you about 30%. I tried to pick the bottom on TLT last year around 110. I got out with a small loss or small gain. Buying a stock or bond that you think has bottomed is fine. Some times it works, sometimes it doesn't. Have a stop in mind in case you are wrong. Paul Tudor Jones has a sign in his office that says :Losers average losers".
I did not tell anyone to buy or short it. It had a big move in one month, but it is still around the levels from August. If you bought earlier in the year, it means you let it go about 30% against you. If you do that a few times with a large percent of your money, it will not end well. Maybe these pros can sleep at night because they are using other people's money, not their own.
The real bond math: Rates go up -> The US government needs more money to pay the interest -> More bonds are issued (as nobody is raising taxes) -> Rates need to go up even more. (Though it's not something I'd expect Harvard graduates to understand). This super safe TLT is down from 170 to 83. At inception in 2003 it was 89. What a great business to lend money to the US government. I suppose the same people who expected a rally at 112 are expecting it now.
Ps: Mom and pops don't even know what a bond is and even if they do they are too busy trying to save enough for food than buying bonds. Rates need to be 15-20% for people to forgo consumption for saving. Nobody today starts saving because they get this amazing 5%. People are willing to pay 25% interest for a credit card loan. So that's where things are.
It drives me crazy when I tell people to pay down their 20% credit card debt with their savings that makes 1% or even 5%. They won't do it because they say they might need it for an emergency. The credit card companies figured out this glitch in human nature and are getting rich off it.
@@FinanciallyAware a lot more money is made from this kind of stuff than innovation.
"the risk-reward for duration is extraordinarily favorable right now and it's just the bond math"
Too good to be true. Maybe the chances for a 100bp drop is 20% and for a 100bp rise is 80%. Then your expected returns change completely than if you just assume 50/50.
@@martintheguitarist it was a quote from the article he was reading...
Yes, good point. They make it sound like they're equally likely outcomes.
I remember watching this video when it first came out. TLT was in the $80's and I passed thinking it was a bad bet. These investors were all saying TLT will rise when the Fed cuts rates. The fed didn't cut rates but TLT went up to over $100. The Fed then cut 0.5 basis and now TLT is dropping, currently at $95. I give up. Thanks
Hindsight is 20/20. It turns out this video picked the low point and best time to buy TLT. Wish I had seen this back in October 2023.
Always thought provoking and informative :) What about taking the yield less inflation and then comparing the net results... ie the "true" rate of return????
Good point. But even the "true" rate of inflation is not what I see when I go to the grocery store.
Exactly! It's in the LOW 80s and has hit historical long term support.
When else would you buy TLT if you were going to buy it?
I still get my monthly dividends posted to my account. Eventually the price will rise with lowering interest rates. The government debt can’t be serviced on a longterm basis at the current rate
The government doesn't really decide at what rate they can service the debt. The buyers of the debt do. They may start to require higher rates for taking on the risk of holding govt promises for 30 years.
I think FED will keep rate up there (not necessary higher) for as long as they can, so i put all $$ into TLTW, get 15-18% dividend (pay monthly), use that to buy TLT month after month, then slowly switch TLTW money back to TLT, when Fed start to cut rate? Anyone doing the same??
I too started buying tltw the first of the year and add monthy
Could buy long dated treasuries in 1980 close to a 15% yield. That was the real opportunity not at less than 5%. Given the lack of demand coupled with the enormous level of debt to be financed I'm afraid there will be more pain than gain in TLT.
I doubt 5% is the high. In 1980 our debt to GDP was like 35%. Now it's like 130%. This is never getting paid off.
@@FinanciallyAwareseems ignorant. What matters is debt servicing costs.
The only thing is the U.S. is stuck, can't survive on higher interest rates because of the record "34 trillion". Raise any further, and the interest payments to service their debt becomes unmanageable. Lets see how many banks go belly up if they dare raise interest rates further. Rates are stuck in a game of chicken. TLT is not necessarily a bad bet. Stocks or TLT?
It is a bad situation either way.
@@FinanciallyAware agree with that! If we could only make them reduce spending 😓
Tlt is free money. Options buying is maybe better to risk lower money and you have a leverage
Hello, nice to meet you.
I was actually looking for some information about TLT and came across your video.
First of all, thank you very much, a short and effective video.
Secondly, I have a question for you, when the price of the bond increases, the yield decreases and vice versa.
How is it possible that in 2020, when there was Corona and the Fed lowered the interest rate to 0%, the price of TLT simply crashed?
Wasn't the TLT supposed to come up at the time?
Thanks in Advance
Thanks for the question. If you look at a chart of TLT from 2019 to now, you see that the price did not crash in 2020. By the end of 2020 it was still around $160. Even if the Fed Funds rate is 0%, the rate (and price) on the 20 Year Treasuries (TLT) do not necessarily follow what short term rates are doing. It is more of an expectation of where long term rates are going. Long term rates are supposed to consist of short term rates plus term premium. Term premium has just now gone above 1% point when it was a lot lower for years.
@@FinanciallyAware I understand.
thank you, you help me a lot
Thanks for the interesting video. I guess making a bit more than 3% on dividends while waiting for the price of TLT going up is not the worst investment option. Unless you need to sell it soon! lol
If you think interest rates are going down soon, then that is the logical thing to do. I am not so sure.
Just this week I started buying TLTW my thought is it pays 18% in premium that will offset any potential further move down over the coming months worst case scenario, in a up trend I could earn 2/3 of the price appreciation and the premium potentially best case scenario of over 40% that’s 24% from price and 18% from premium in a perfect world.
Any thoughts ?
I am not familiar with this. Looking it up I see it holds about 96% in TLT and the rest in short calls. It is down from $40 in Sept 2022 to about $26 now. So even with the call income it has still lost money. There is no free lunch. Warren Buffett has returned 20% annually his whole career. Is it really possible that you can make an easy 18% on this every year? If that was a sure thing, I would just put my money in that and not worry about the stock market (I'm not saying you should do this). The calls expire worthless when TLT is heading lower, but when it is heading higher (interest rates going lower), you will cap the upside with the calls. Really understand how this thing might move in different interest rate environments. Maybe look at some other covered call ETFs that have a longer history.
Wonderful thanks for replying.. a couple of items to add ishares owns TLT etf so it writes calls on it 2% over current price every month that means you will get max 2% appreciation if TLT is going up, if it jumps 5% you will only get the 2% plus the premium roughly 1.5% per month or 18% per year. I am not worried about looking a little here or there, the Fed rate cuts tend to span 1 to 2 year they don’t move that fast.
This is a new fund not been around long if you look at the dividend history it is on track for 18% my thought if TLT dropped -10-15% the premium would cover that but not anything more serious like -30%
Fed rates have been very low for the last 15 years till early last year. So were the bonds all that time also CDs & saving accounts, have been crap. Was your bond valuation based on keeping the bond to maturity or selling before that? Cause the US bonds will pay the principle back with out losses. But if you sell early then you might lose a bit. Right?
The calculator I used figure the current market price of the bond. Yes, if you hold it to maturity you get the full face value. But in the mean time, you are getting a lower coupon than current rates which means you are losing to inflation. That $100 face value you get at the end of 30 years is worth a lot less when rates are at 6% instead of the 5% you bought them at.
Yes if the US could afford to have rates at 6% for 30 years the dollar will be worth nothing anyhow. Like you said over $800 a day in interest as is. The FED will drop the rate back down to near 0% & keep deficit spending like always.@@FinanciallyAware
Rate cuts will come. And now there is no risk with tlt bonds I think. Fed will decrease the interest rates by 25 or 50 points and that’s good for tlt etf
Okay so what you said right before the 2-minute mark, it is the popular narrative but it also doesn't make sense. If you're sinking record amounts of money into anything you move the price up. The price of TLT has been going down which means if that narrative is true there are a lot of funds leveraged short against it. They have to cover at some time. It's possible the smart ones have started with that rapid move we saw from 83 to 88. Personally speaking being long TLT I don't think is that attractive but shorting puts with at least a year of time, I like that trade. It's simply a bet on rates not going meaningfully higher, how quickly they come down, it doesn't matter that much.
I'm not sure if the selling was people shorting or just massive amounts of sellers. The new buyers were scaling in on the way down it seems.
No lose until you sell ! Until then collect interest and dollar cost average in.
Wasn't this the SVB business plan too? Most of these Wall Street funds are on margin, especially the ones trading in bonds.
Saying you don't lose until you sell is a cope to keep a losing position. Same with the banks. If they are holding 30 Year Bonds yielding 2% or so, they are losing to inflation by not getting the current interest rates.
@@FinanciallyAwarebonds have had smaller yields than current yields for the last decade. With your logic anyone who bought a bond in the last decade was “loosing to inflation”. If the half the yield was good enough for billions in purchases during the last decade, it’s certainly good enough now.
When the yield curve inverts and the economy crashes, the short term yields will fall
Completely switching gears will see what the PM market does with this latest rate increase.
Gold May hit an all time high will it bring on panic buying?
Real money now could be in cryptos
I don't know if people have extra money to panic buy gold.
There is no evidence that government borrowing needs affect long-term interest rates in US Treasuries. The bonds are priced by long-term growth & inflation expectations and nothing more than that.
It looks to me to be mostly a hedging strategy, for non-speculators.
It could be.
Thanks. Excellent.
How high do you think 30 year Treasury yield will go?
I don't know. If we get another bad 30 year auction, it could get above 5%.
@@FinanciallyAware thanks 👍
They hit 5.4% once in 2007 and broke 5.3% around a dozen times.
TLT will spike , even if fed raises rate 1% more this will be ard 80 at most. If fed cuts this yr , to 3% this will be 120 , easy money.
Listen to the fed. They will cut . This is free money
You think they will cut to 3%? That is a lot.
Always interesting takes FA. Thanks.
I'm glad you liked it.
This didn’t age well. The best one month rally in the history of Bonds occurred after this video. What you called “sinking money into” was averaging down.
I said I did not think 30 year bonds would peak at 5%. They have fallen down to 4%. Was that the top for rates? I don't know. Either way, averaging down into losers is a sure way to take huge losses. If you were averaging in TLT earlier in the year from around 110, that means you let it go against you about 30%. I tried to pick the bottom on TLT last year around 110. I got out with a small loss or small gain. Buying a stock or bond that you think has bottomed is fine. Some times it works, sometimes it doesn't. Have a stop in mind in case you are wrong. Paul Tudor Jones has a sign in his office that says :Losers average losers".
Seems you totally misread the market on TLT … it had fallen to 75-80 range and pushed up 20 percent in just one month
I did not tell anyone to buy or short it. It had a big move in one month, but it is still around the levels from August. If you bought earlier in the year, it means you let it go about 30% against you. If you do that a few times with a large percent of your money, it will not end well. Maybe these pros can sleep at night because they are using other people's money, not their own.
They aren't expecting a recession. They are expecting a great depression.
Either way, they will not tell you what they really think is coming.
I want to buy gold need more lonlige
TLT bull TMV bear 😀😄
And more losses are to come. It aint over.
Another $1.5 Trillion will be added to the debt in the next 6 months.
Shouldn't it be this simple? If the fed continues to reduce its balance sheet then TLT should continue to drop?
QT is not helping the price of TLT. I don't know to what extent it is affecting it.