r/bonds

title says it, Im confused and I don’t see why the market thinks this is a good thing

Hey All,

Not sure if this is useful to anyone, but happy to give a little behind the scenes as a sell-side bond broker. It's a slow week.

I sell fixed income investments to institutional investors & RIAs.

I had this posted on ELi5 but it was removed because it’s linked to a current event. But…I’d still like to learn about this topic. Maybe someone can explain?

I’m reading the news about the deficit and trying to understand the language around bonds (in the US) and the overall effect they have on the deficit etc. What’s the story here? People cashing in bonds? Something else? I keep reading text like, “doubling buybacks” and “the deficit threatens the bond market”.

My I Bonds purchased on 06-01-2000 are currently yielding 7%. The fixed rate was 3.6%. Inflation is currently 3.4%; hence, a 7% yield.

But as an inflation hedge, I would personally buy utilities and reits.

The 30-year Treasury yield just pushed above 5.3%, its highest level in nearly two decades.

Everyone keeps focusing on whether the Fed cuts, holds, or hikes next.

But I’m starting to wonder if that’s becoming less important for markets than what’s happening further out on the curve.

If long-term yields stay elevated because of deficits, Treasury supply and investors demanding more term premium, the Fed could eventually cut and borrowing costs might still stay pretty high.

That feels like a very different setup from the last decade.

And for stocks, especially anything trading at a high multiple, I’m not sure the market is fully pricing that in yet.

Maybe strong earnings can keep offsetting it for a while, but if 4.5–5% long rates become normal rather than temporary, I’d expect valuation multiples to matter a lot more again.

The 30 year TIPS looks compelling to hold in an IRA, the current issuance for the auction on 8/20 has a 2.375% coupon and a 3% real return against inflation (inflation as measured by the CPI - not looking to debate whether or not it’s accurate).

A 3% real return against inflation, compounded, will increase your purchasing power by approximately 150% in 30 years - not including coupons. Not bad if you are young enough to hold to maturity or holding to pass on to heirs.

The 2.375% coupon is also higher than we saw on nominal bonds just a few years ago, providing $237.50 in income annually for every $10,000 invested, which will also increase each year as the coupon will be paid based on the adjusted face value.

To me, the risk/reward still does not make these worth buying.

I'm thinking of deploying all my funds to the 20-year. It'll let me live well for the rest of my life at least at today's dollar value. Sound crazy? Of course I don't have to hold it for 20 years, if what I'm thinking comes along (stagflation or worse) I can sell and reload. I'm 71 years old.

US 30-year Treasury yields hit highest since 2007, above 5%. Japan's 10-year borrowing costs reach three-decade high just under 3%. German, French long-term yields also at highest in years.

So I have a 2028 TIPS ETF fund via Ishares. I'm curious what happens in my brokerage account (IBKR) when the bonds it contains mature in 2028. Does it get automatically liquidated into cash (i.e the principal), with the ETF disappearing from my list of assets?

With interest rates for 20-year Treasury bonds reaching upwards of 5.2%, is this a good time to invest in long-term bonds? I already own some 20- and 30-year Treasuries that I bought after COVID when yields were around 4.7%. My plan is to hold them to maturity unless their value increases significantly before then.

I realize nobody has a crystal ball, but I am curious how others are thinking about current yields. Based on historic data, 5%+ on long-duration Treasuries seems fairly attractive compared to what we have seen over the 15 years. On the other hand, the biggest risk to buying now is that rates continue to move higher, which would push bond prices lower (like the bonds that I currently hold).

For those who are well versed in Bonds and follow the Treasury market more closely, do you view current long-term yields as attractive enough to start locking in for 20-30 years?

I am wondering whether I am underestimating the risk that today's yields could look low a few years from now.

Interested to hear how others are approaching this.

In 2021, I was lucky to refinance my mortgage to a 30y fixed 3.125%. I'm also staring down retirement. I pay $2200/month P&I, currently $1k/mo principal, for the mortgage. I'm also looking at long-duration TIPS trading around 3%.

Let's say I wanted to take a year of principal off the mortgage. If I were to pay/take it in 2051, I would need $26400. Assuming i take this from my 401k/IRA, minus a ~12% tax rate, I'd need to have saved $29568 by 2051. Or, I could pay roughly $12000 now, on an after tax basis, out of my current savings.

Or, hear me out: I could buy 23 of CUSIP 912810SV1 for ~$14608 in my 401k/IRA. This would pay me a real return of $29567 on 2/15/2051, covering my mortgage P&I for the year. Between now and then, every year, I get ~$37/year in todays dollars, another roughly ~$900. Every year, I pocket any increases in inflation between now and then above the mortgage payment.

Using the tips ladder app, I estimate this for bonds between 2040 and 2051:

Funded****year	TIPS****holdings	Purchase****cost today	Real**^(*)**principal	Real**^(*)**interest	Real**^(*)totalproceeds**
2040	912810QF8 × 17	$24,664	$26,308	$3,064	$29,372
2041	912810QP6 × 18	$25,461	$27,493	$2,493	$29,985
2042	912810QV3 × 19	$20,696	$28,125	$2,095	$30,220
2043	912810RA8 × 19	$19,351	$27,642	$1,903	$29,545
2044	912810RF7 × 19	$21,358	$27,268	$1,629	$28,898
2045	912810RL4 × 19	$18,349	$26,988	$1,341	$28,329
2046	912810RR1 × 20	$19,783	$28,233	$1,098	$29,331
2047	912810RW0 × 21	$19,480	$29,098	$830	$29,928
2048	912810SB5 × 22	$20,182	$29,841	$553	$30,394
2049	912810SG4 × 22	$19,476	$29,243	$258	$29,501
2050	912810SM1 × 23	$15,850	$29,923	$74	$29,997
2051	912810SV1 × 23	$14,608	$29,549	$18	$29,567

All else being equal, paying $12000 today out of money I may need for expenses today, or $14608 of my net worth in my pre-tax 401k/IRA, MINUS interest coupon payments of $900 total and MINUS any inflation increases between now and then which are in my favor, (PLUS any hidden risk that interest rates move/dollar deflate); the investment in the ~25yr remaining TIP suddenly becomes very tempting. Earlier maturing bonds are seemingly less good of a deal, with by 2041 or so no deal at all, but also seem to offer a way to pay "less" for a future obligation in a "guaranteed" way than paying today, plus provide some real income on the side every year beyond "dead" money sitting in home equity. I'm in some ways trading a taxable expense today for a, maybe lower, tax free one. (glitch in the matrix?)

I'm aware that taxes, maintenance, insurance, etc are not covered here, but those are real expenses I have to budget for anyway. I'm also aware that putting the same amount "at risk" in the market would likely pay off better by 2051. I'd have to "sell" something to buy this, but swapping a riskier asset like a corp bond ETF in my current bond sleeve, or even a dog equity, seems a wise choice. It's also something I don't have to go in all at once: I could buy half now, say 10 bonds, and if interest rates go up further, buy the remainder at an even greater discount later.

Am I crazy, or is this a "really good deal"? Any blind spots I've missed?

Deal, or no deal?

Hi,

I am UK resident and am looking for a tax-efficient way to invest approximately £50,000 outside of my ISA and pension allowances, both of which are already fully utilised. The majority of my existing investments are exposed to the US equity markets, and my residential mortgage has been fully repaid.

I am currently considering 0.625% Treasury Gilt 2050 (TG50), which appears to have a current yield to maturity of approximately 5.7–5.8%.

Based on the current price, I estimate that a £50,000 investment would generate approximately £925 per annum in coupon payments.

Am I correct in understanding that:

1. The annual coupon would be treated as savings income and therefore could potentially be covered, in whole or in part, by my Personal Savings Allowance, depending on my other taxable savings income?
2. Capital gains on the disposal or redemption of TG50 are exempt from Capital Gains Tax?
3. Consequently, if gilt yields subsequently fall and I sell TG50 at a higher market price, any resulting gain would also be free of CGT?
4. Alternatively, if yields remain elevated, I could simply hold the gilt until its October 2050 maturity and receive the £100 nominal redemption value per £100 nominal held, together with the remaining coupon payments.

If this understanding is correct, the combination of a relatively high yield, CGT exemption and the option to either sell before maturity or hold to redemption appears potentially very attractive for an investment outside tax-efficient wrappers.

I would be grateful if you could confirm whether my understanding of the tax treatment and the risks is correct.

I am also guessing this would offer me some diversification from my high equity allocation. I would also be looking to make more of these type of investments in future years to create a bond ladder in retirement.

.... and it will mandatory after October 18, 2026. Per Dave Enna

https://preview.redd.it/vkx6s3z5vxjh1.png?width=658&format=png&auto=webp&s=eb0954c3fb0b6e8343f777ddfbbbad12b8a67e6d

I'm looking at some Tennessee Valley Authority (TVA) bonds, specifically the 2060 and 2065 maturity ones, and I can't seem to find if these are callable.

AI has been no help, suggesting I visit "Path: tva.gov > Investors > Bondholders > Offering Circulars" but it's blocked in my country (if it even exists and not a hallucination...)

Does anyone know if these are callable, under what provisions (make whole, only after X years, etc.) or can access that site please?

Also, how far from treasuries, risk wise, do you think these are?
Thanks a lot.

Do you think something like a "Great Indian Bond Festival" can actually make fixed income interesting to investors in India?

As a retiree, I have only been trading bonds for a few years now, and this is a first for me. 81887TAA2 Shaffer Elementary California bond matured on 08/01/2026, but here it is more than two weeks later and nothing. I called my broker twice and they said to just keep waiting. Interestingly, the muni has made their interest payments on time, I just want to get my principal back now.

I think they have a rating of A+. I thought bonds were a pretty safe way to keep cash flow going, but now I am wondering if I need to just stick with treasuries.

What are the next steps if any that I can take to regain my principle, if it comes to that? Also, if they end up paying months late, do I get an extra interest payment for that?

Assumption is the following :

Beginning January 2027. The economy slows but only mildly. Economic metrics are worsening by April. Abruptly, there is downward momentum as the stock indices (which held up well at first) now collapse. The Fed panics and rapidly lowers rates. Bessent prints a record breaking amount of new money. ... because the already bad budget deficits worsens.

Does this extinguish inflation ??? ... or is it Stagflation, instead. Which bonds to own ???