TLT: Think Long Term

By | October 9, 2015

Scalper1 News

Many retail investors find it easier to access and buy bond funds or bond ETFs instead of going out andowning individual pieces of paper debt. It has been a dull few years for bond investors. As equity prices have risen higher since 2007 and 2008, bond performance has struggled. For the course of the long term, we remain very bullish on U.S. treasury bonds, and we recommend TLT – think long term. By Parke Shall Bonds can sometimes be tricky for the average retail investor. They are usually priced much higher than stocks, sometimes around $1000 if you want to buy individual bonds, sometimes higher. It’s for that reason that many retail investors find it easier to access and buy bond funds or bond ETFs instead of going out and owning individual pieces of paper debt. There are a growing number of bond ETFs that you can put your money into, but the most important thing to look at is always whether or not these ETFs are levered and what the fees are going to cost you. Bond instruments for the long term should not have leverage, and should simply track the yields of the type of bonds that you want to invest in, whether it is municipal bonds, corporate bonds, or our favorite; government bonds. Here is a list of some of the more popular treasury bond ETFs, from ETF Database , (click to enlarge) Our preference is the iShares 20+ Year Treasury Bond ETF (NYSEARCA: TLT ). It has been a dull few years for bond investors. As equity prices have risen higher since 2007 and 2008, bond performance has struggled. This does not discourage us, however, as our bond investment strategy is to buy long term treasury bonds where we think there is eventually going to be some pricing support and some safety. Our investing strategy is one that always has some exposure to the consistent coupon of bonds. We try to keep some cash, we definitely keep equities, but we always do try and have varying amounts of exposure to bonds as well. Treasury bond prices have fallen, and the latest bit of news from the world of treasury bonds was that China was curbing the amount of money that they were pouring into U.S. government debt. Zerohedge said : As BNP’s Mole Hau put it on Monday, “whereas the daily fix was previously used to fix the spot rate, the PBoC now seemingly fixes the spot rate to determine the daily fix, [thus] the role of the market in determining the exchange rate has, if anything, been reduced in the short term. ” And a reduced role for the market means a larger role for the PBoC and that, in turn, means burning through more FX reserves to steady the yuan. Translation and quantification (with the latter coming courtesy of SocGen): as part of China’s devaluation and subsequent attempts to contain said devaluation, China has sold a gargantuan $106 (or more) billion in U.S. paper just as a result of the change in the currency regime. Notably, that means China has sold as much in Treasurys in the past 2 weeks – over $100 billion – as it has sold in the entire first half of the year. Today, we got what looks like confirmation late in the session when Bloomberg, citing fixed income desks, reported “substantial selling pressure in long end Treasuries coming from Far East.” We believe this move, on China’s part, is due to China needing to access the cash that it has in order to stabilize its stock market. When we look out over a broader term, we believe that Bond prices treasury bond prices will eventually study. Another interesting fact directing the bond market is the fact that inflation is seemingly nonexistent. This makes bond investing even more attractive, we believe. Short-term yields may stay at levels that they are at now for a little while to come. When the Federal Reserve finally gets around to raising rates,Will expect find pricing to begin stick up once again. However, for the course of the long term, we remain very bullish on U.S. treasury bonds, and we recommend TLT – think long term. Scalper1 News

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