For example, if long term bond yields move to 7%, the loss will be 25%.
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.
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.
Nor is it just the threat of higher short-term rates and inflationary pressures in America that is driving long-term bond yields higher.
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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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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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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This is the argument for replacing the promissory notes with a very long-term bond.
FORBES: How Much Would Ireland Benefit from Replacing the Promissory Notes with a Long-Term Bond?
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.
Vanguard Long-Term Bond shares are currently trading down about 0.8% on the day.
With any long-term bond the investor is at the mercy of interest-rate fluctuations.
This is Mr Bernanke's preferred cure, but it has not stopped deflation in Japan, where long-term bond yields are 0.6%.
Investors are attracted to property by the gap between rental yields, around 3.5%, and long-term bond yields, now around 1.8%.
American mortgage rates have already risen sharply in the past two months, in line with the jump in long-term bond yields.
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Over the past three years real long-term bond yields have been on average 1.4 percentage points higher in New Zealand than in Australia.
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That strategy worked well when long-term bond prices were falling sharply.
When long-term bond prices were rising, managers came to regret it.
Here is a spreadsheet that I have put together that illustrates why a long-term bond is preferable for Ireland to the current promissory note arrangements.
FORBES: How Much Would Ireland Benefit from Replacing the Promissory Notes with a Long-Term Bond?
And by putting downward pressure on long-term bond yields, it may require the Fed to raise short-term interest rates more aggressively to cool down the economy.
In the event the ratings agency cut Greek long-term bond ratings by two notches to B from BB- and said that the outlook may bring a further weakening.
The yield of the benchmark long-term bond hovers around 1.2%.
That has helped drive up long-term bond yields from 2.53% the day after the Fed's announcement to 2.8% now, precisely the opposite of what QE was meant to achieve.
Many women say that, over the years, the trust they place in advisors, who have helped them through everything from the purchase of a new car to a divorce, becomes the foundation for a loyal, long-term bond.
Washington now controls long-term bond yields, promises low interest rates years into the future, makes bets on trillions of dollars in bonds, dominates the home-mortgage market and regulates myriad aspects of banking and investing in the U.S. and abroad.
However, the model also suggests that, if lower interest rates are to revive the economy, a cut of 2.5 percentage points (the size of the cut until this week) would normally be expected to have lifted share prices by 22% within a year, reduced long-term bond yields by three-quarters of a point, and left the dollar 5% weaker.
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