That was the subject of the daily afternoon email from Bloomberg referring to what is happening in the treasury market as yields continue to work higher, sending prices lower.
I pulled up the following, halfway through the trading day thinking more like the pain continues for holders of long bonds more than thinking it was a meltdown.
Bespoke Tweeted out that since inception, TLT is down slightly on a price basis and that on a total return basis it is down going back to 2012. There's been a flood of pundits weighing in across the webs about why longer bonds are now attractive but the same or similar arguments were made at lower yields on the way up to the now current 5.11% on the ten year treasury.
I'm sure the textbook logic expressed in those opinions is correct but yields still keep going up. It is correct that losses from 4% going up to 5% are different than losses from 1% up to 2% were because as the price does its thing, investors are collecting 4% versus collecting 1% or less five years ago. That does nothing for the volatility or the risk that rates go higher from here. It is difficult to see the price inflation problem subsiding soon and that certainly is relevant.
The way we have been framing this has been as a matter of adequate compensation. Forget all the textbook logic, what return do you find to be adequate compensation for the volatility of owning intermediate and longer dated debt? For me, low fives doesn't do it. Maybe at 6% if it ever happens, not sure but at 7% probably a little.
I've been repeating the above sentiment about 6 and 7%....if it ever happens for quite a while. I have no idea if it will ever happen but I do know that 5+% is not adequate compensation.
The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.
5 comments:
Roger, enjoy your writing and continue to learn from your approach!
Question for you on BPOS. For a well diversified 55/25/20 portfolio carrying BPOS as part of the 20; am curious if you would share your thoughts on position sizing BPOS to be effective as a first responder?
Jeff, I am unfamiliar with this space. Gemini gave four stocks that are involved with BPOS, can't vouch for the accuracy. The stocks were CNXC, G, EXLS and TASK. Gemini said there are other ways to access like interval funds.
The stocks, if correct choices from Gemini are insanely volatile. Any private market vehicles will appear to be less volatile depending on how they are marked to market but you give up daily liquidity.
What should BPOS do for a portfolio? Whatever the answer, I would wonder if there is an easier way to add that attribute.
Thank you,
Roger, please forgive my typo…. My bad. Intended to ask for your thoughts on BTAL. Meant to ask this.
For a well diversified 55/25/20 portfolio carrying BTAL as part of the 20; am curious if you would share your thoughts on position sizing BTAL to be effective as a first responder?
Clients and I have owned BTAL since 2018 so obviously I am a believer in it. From there it comes down to sizing. My preference is a small allocation, I have small allocations to any of the diversifiers I use. If you've started digging in on, it always backtests very well as part of a portfolio but it can languish for very long periods like now because the market has generally gone up. We each have our own fulcrum point where it would weigh too heavily on the rest of the portfolio. My low percentage is not close to my fulcrum but I believe is still effective when markets drop.
Agree with your position to diversify your diversifiers and to do so in small allocations.
In complete transparency I’ve carried BTAL for several years. It’s drifted down to 3% (a good problem with the rise in markets) and am wrestling with the question if that is sufficient to be effective when markets drop. That is really the prompt for my questions here….
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