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.
Case in point: The Barclays Long-term Government Bond Index has gained over 25% this year through November 30th.
"There will be a financial stability problem" if long-term government bond yields rise to 2.5 percent to 3 percent, he said.
The slope of the yield curve can be measured in varying ways but is conventionally thought of as the long-term government bond rate minus the short-term government bond rate.
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The rise in medium- and long-term government-bond rates has already taken many by surprise and has led to howls of protest from politicians.
The average yield of the U.S. long-term (20-30 year) government bond was 3.46% in September 1929 and declined steadily to 2.01% in December 1940.
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Only a fraction of the three-year money the ECB has lent to banks since December under its Long-Term Refinancing Operations has been channeled to troubled government-bond markets (though it has helped the banks).
On the bond markets, the Spanish government's long-term cost of borrowing fell slightly, to an implied interest rate of just under 6% for 10-year debt.
Then, with much of the European bond market effectively neutralised by the long-term purchase of government debt by the ECB (we are paid not to think about the market value, says one fund manager), you make a large part of the world's debts difficult to value.
Len, do you really believe that the government bond market will regain confidence when the politicians agree to resume borrowing without closing the long-term gap by even 10%?
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