US Treasury yields continuing to climb

can someone explain to me, what is bad about it when the news reports "US Treasury yields continuing to climb" ?

simply asked, is the fact that they yield is getting higher, purely a bad thing and why is that?

why would I not want more for my treasury bonds?

Reply to
Ayeya
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In terms of overall "market" response, we live in a credit driven world. Increase in yields means rates for borrowing money goes up. (Ie, if investors can get a higher yield from risk-free treasuries, that means they have to charge higher rates for everybody else.) If people/companies/government can't borrow money to pay the bills, everything will go into the crapper.

In terms of your personal Treasury holdings, only NEW bonds you buy will get the higher rates. Your existing bonds will continue to collect the previously lower rates. This means the resale value of your bonds has gone down as why would an investor buy your bond for face value when they can get a new one paying higher interest for the same price.

Reply to
wyu

There's no reason why you, a T-bond owner, wouldn't want a higher yield. However:

  • Higher interest rates means that borrowing will get more expensive, which is usually an economy-wide negative.
  • Higher interest rates often mean that the market expects inflation to accelerate (because of inflation expectations, bondholders are demanding higher yields to compensate for expected increased inflation). If it does, that's generally negative.
  • Higher interest rates make bonds relatively more attractive compared to stocks, plus the sorts of things that tend to cause bond yields to rise are generally bad for stocks, so higher interest rates are often negative for stockholders.
Reply to
Rich Carreiro

Whether it is good or bad depends on whether you are buying or selling. When the yield goes up, the price goes down. This is a good thing if you are buying, bad if you are selling.

You don't get any more for the treasury bonds you already own. Their yield is fixed to maturity. You will get more for bonds you buy, because you pay less for them. Yield is bond price divided by the annual interest payments. (I know that is a little too simple, but it will do for this discussion.)

-- Doug

Reply to
Douglas Johnson

Good for someone, bad for others. First of all borrowing costs for businesses go higher, thus impacting the profits. Second investors are always looking at a competition between stocks and bonds. With interest rates higher, bonds become more attractive. Stocks become less attractive. Thus higher interest is bad for the stock market.

Reply to
PeterL

Because of two things: One - bonds you already own will be worth less; and Two - borrowing costs for new things (and adjustable things) will go up.

It's not necessarily a bad thing - depending on who you are, what your borrowing needs/situation is, what your portfolio is like, how the economy is doing, etc. etc.

But for a big chunk of the economy - and most bond portfolios which are already in place - yes, it can hurt.

Treasury bonds you already own will not pay higher coupons. They continue to pay exactly the same amounts they were paying. But if you wanted to sell them today (instead of waiting for them to mature), you'll get a lot less money because as interest rates rise, values of existing bonds with fixed payments go down.

Think about it - if you paid $100 for a bond which pays you $4 a year in interest and now interest rates are such that someone can pay $100 for a bond which pays $5/yr, why would anyone pay you $100 for your bond anymore? They wouldn't. They'd probably offer you something closer to $80 (well, more, but depending on the maturity, etc). Your "portfolio" of a single $100 bond is now worth a lot less than it was before rates went up.

Reply to
BreadWithSpam

so assuming I had zero debt and no need to borrow money, everything paid off and all my needs satisfied (health, house, car, food, clothing)

would this be a good time to start moving 401k and IRA funds from stock mutual funds to diversified bond funds?

..or have bonds exhibited a tandem, synchronicity in movement to overall market conditions and would also take a dump if credit conditions were significantly tighter and inflation higher?

Reply to
tRd

T-Bill rates have been dropping. If the rates on Notes and Bonds have been rising, doesn't that mean the yield curve is normalizing? That seems like a good thing to me; an inverted yield curve can be a pretty good indicator of an impending market meltdown.

Bob

Reply to
zxcvbob

A potential owner would prefer a higher yield, a current owner prefers rates to drop, not rise. JOE

Reply to
joetaxpayer

Are you asking if one should time the market for bonds? I'd say, generally, no.

Do you have an asset allocation plan and you just need to rebalance? If so, I'd say, well, yes - but with the caveat that you shouldn't rebalance just because bonds may have gotten hit recently - you should rebalance if your rebalancing schedule (or triggers) have been hit.

Bonds have gotten to be more in sync (higher correlation) with equities in the last decade or two than they used to be.

Part of it is that when bonds get hit - and rates rise - cost of business goes up, so equities get hit. Also - as bond rates rise, bonds may become a more attractive place for capital than equities (though that's probably a bit fuzzier to measure).

The bottom line is that most folks long-term asset allocations probably ought to include some bonds unless they are either very young, very aggressive, or perhaps, very rich and can afford the risk. Even as the correlation is stronger now than it used to be, it's still the case (as far as I know) that a small allocation to bonds (ie. 80% stocks, 20% bonds) gets you almost all of the long-term return that a 100% stock portfolio does but with less volatility.

That all said, if you've got a fixed-rate mortgage as well as a bond portfolio, well, you're effectively cancelling one with the other to a certain extent.

Also, if you have a fixed-payment pension (and/or are collecting social security), that also is effectively an asset which seriously tempers your volatility vs. stocks alone.

Anyway, the question, to me, isn't "is it a good time to buy bonds" but rather "is my asset allocation where I want it to be".

Reply to
BreadWithSpam

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