The yield on the long bond is mainly tied to inflation expectations. Fed bond-buying actually increases inflation expectations. If the Fed would just quit buying bonds altogether, rates would likely fall even further (just like they did at the conclusion of QE1, QE2, and Operation Twist). The Fed's bond-buying has been counter-productive in terms of lowering long-term rates. I have to think the Fed knows this, and they're lying when they claim they do it to reduce rates. The Fed's real goal has been to pump liquidity into the system and thus inflate asset values and increase inflation (they're more afraid of deflation than inflation). It's hard to create inflation, though, when there's no velocity of money. That's why we have CPI hovering around 1% YoY the past few months.
The CRB commodity index is made up of the following 19 commodities: Aluminum, Cocoa, Coffee, Copper, Corn, Cotton, Crude Oil, Gold, Heating Oil, Lean Hogs, Live Cattle, Natural Gas, Nickel, Orange Juice, Silver, Soybeans, Sugar, Unleaded Gas and Wheat. Do you think those have anything to do with the real economy?
As of this moment, the 30-year rate is down almost 5 basis points, and TLT holds mostly long-term bonds (with an overall duration of around 27-28 years). If long-term rates go down like they are doing today, then TLT should be up, just as it is.
Like most of us, you're focusing on the costs that go up, and ignoring prices that have fallen. The CRB commodity index is down 20% over the past couple of years. That would not happen if we had strong inflation. If you really think we have such strong inflation, go buy some gold. That's really worked out well the past couple of years!
As I've mentioned ad nauseam here, the main determinant for long-term interest rates is inflation expectations (there's like an 80% correlation between long-term rates and inflation). The last few months we've seen CPI hovering around 1% YoY. It would make sense for inflation expectations to be further lowered with less Fed bond-buying. To a large segment of bondholders, Fed bond-buying is perceived as inflationary. The Fed's efforts to date have thus been counter-productive, at least when it comes to the long end of the yield curve. In the past, at the end of each and every iteration of quantitative easing (QE1, QE2, Operation Twist), rates on the long bond dropped, sometimes dramatically.
The main determinant for long-term rates over time is inflation expectations. All indications are that we're seeing disinflation (CPI of around 1.25%), and the Fed is terrified we might actually see deflation (which means we would see even lower rates on the 30-year).
It was around $.65/share previously, but since Yahoo's summary shows an annual dividend of only $.54/share, investors should be aware that it's much higher than Yahoo might lead you to believe.
I've been patiently waiting months for the 30-year yield to hit 4%, my next buying target (I bought at 3.5% and 3.75%). Yields just can't seem to get over the hump to that level.
Rates might go up briefly when the "taper" finally comes, as the Fed has convinced so many investors that only its magic bond-buying keeps rates down (just one more unintended consequence in a growing list). In previous iterations of QE, rates briefly jumped when the bond-buying stopped, and every single time rates soon started falling (at times dramatically) when economic reality hit. In an economy that averages sub-2% growth, and sub-1% inflation, any increase in rates is not sustainable over the longer term.
I'm convinced and I'm selling. And I'm going to use all my proceeds to buy amazon stock.
Gross US public debt is about 107% of GDP. Gross Japanese public debt is about 230% of its GDP. The levels of private debt are important too, but I'm just focusing on the public debt at the moment.
Foreigners own a little over 50% of the outstanding US treasuries, but it’s concentrated in the short-term (2-year and under) market. They only own about 8% of the treasury market with maturities over 10 years. Long-term bonds are thus principally a domestic market.
Not sure, but there are several stocks on my screen dropping for no particular reason (Campbell's Soup; Starbucks). TCS reminds me a little of Restoration Hardware, whose stock also inexplicably bounced up and down early on (maybe because they are thinly traded?). I bought TCS the day of the IPO, and won't judge the investment for at least 5 years. They have a nice niche, happy employees, and offer a great customer experience. Now if they could just turn a profit. :)
I'm not a BBRY hater, but I watch it because of the lessons that can be learned. It's always curious to me that many people will just hang on to a stock to the bitter end (ego? emotions?) instead of cutting their losses and moving on. For all I know, BBRY bounces after the capitulation is finished (who knows?), but it has to be a painful ride for anyone who's been in this name for any significant period of time.
That's not how bonds work. Japan has twice the debt load we do, and interest rates that are less than half of ours. A huge debt overhang actually suppresses rates because the interest payments suck oxygen out of the economy. All additional debt is simply future consumption denied, so the economy slows down even more over time.
The VXX, haha, that's a good one. Ever looked at a 5-year chart of VXX? It goes down 95% of the time, with occasional, unpredictable spikes. VXX is an excellent way to #$%$ away money, if that's what you really want to do.
Go take a look at MIT's Billion Prices Project chart, which is updated daily. Inflation there is running just below 2%. Have you been to the mall lately? Desperate retailers are slashing prices for the holidays. Have you been to the gas station lately? Gas is cheaper than it was a year ago. Everyone expecting inflation fixates on prices that are going up, but ignore the prices that are going down.