Ten-year AAA munis were unchanged yielding 2.26% (98.3% of treasuries) after a weak 30-year long bond auction.
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Meanwhile its February 2040 maturity tightened by four basis points sitting 130 basis points above the 30-year long bond.
He predicts that the long bond might yield as low as 4.5% if a global recession develops from Japans inaction.
Thus, the yield on the long bond rocketed past 4% yesterday.
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Meanwhile, the long bond keeps rising in price, defying debt-doomers.
The long bond has averaged 5.05% over the same dozen years and is currently yielding 4.66%, and the 3-month bill is currently yielding a whopping 0.11%.
While the 10-year note yield is well off its lows thanks to an early 2013 climb, it still stands at just 1.82%, while the 30-year long bond is just a shade over 3%.
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Another reason demand for the long bond has been so voracious is that a lot of investment banks still use them to hedge their corporate-bond positions and interest-rate swaps (between fixed- and floating-rate obligations).
It is interesting that the British 50-year bond, though successful, attracted bids equal to only 1.6 times what was on offer, compared with demand equal to three times the total when France launched its ultra-long bond earlier (though different circumstances explain some of that gap).
For example, if long term bond yields move to 7%, the loss will be 25%.
Consider: A long Treasury bond bought today is destined to earn 4.7% a year over its lifetime.
But the Treasury's original announcement was not, in itself, enough to explain the speed of the movement in long-bond yields.
The dividend is riskier than the coupon on a long Treasury bond (which yields about the same) but is presumably better protected against inflation.
If inflation trends toward zero (before moving much higher later in the decade), then long term bond yields could naturally fall toward 2%.
The overdue migration of institutions and individuals out of money markets and long term bond investments just started based on monthly equity mutual fund inflows.
So long-bond buyers in today's market run the risk of purchasing something that is extremely likely to lose value while gaining nothing or next to nothing in yield pick-up.
This strategy gives you the higher interest rate of the long term bond but also gives you flexibility to buy and sell the short term bonds if interest rates rise.
There are people who will reach for yield either by going to a high-yield bond fund or maybe a long-term bond, but those, for me, pose a little bit too much risk.
Vanguard Long-Term Government Bond ETF ( VGLT) seeks to provide a diversified exposure to the long-term U.S. government bond market.
The only options for investors were to buy contra funds or strategically shift to holding bond funds, particularly long-term government bond funds.
This is not a problem if you hold a bond to maturity (unless you recently bought a newly issued long-term bond), but it will adversely impact bond fund prices.
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Uncertainty over the timeline for a resolution in Europe and falling levels in the stock market have also helped drive investors into safe-haven assets like U.S. Treasuries, which has left the 10-year bond today yielding 2.11% and the 30-year long-term bond yielding 3.13%.
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The recent round of quantitative easing will fail to keep bond prices high with yields low so we will continue to short the long term Treasury bond, seeing virtually no opportunity in bonds.
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Similarly, not long ago many bond market gurus were predicting the end of high bond prices.
This is the argument for replacing the promissory notes with a very long-term bond.
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The long-term bond market is also very accommodating today for companies that do not have leveraged balance sheets.
It is long-term bond yields, and the mortgage rates allied to them, that give the economy its tempo.
Long-term bond prices could then drop even more than equities already have dropped.
It has been a long and strong bond, cemented by the country's strong reliance on the European export market.
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As long as government bond yields stay well below earnings yields, it can.
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