Investing General Discussion

Those 2.x% treasuries are underwater because they were purchased some time ago at lower rates. You can buy a 2yr treasury for 4.7% today. So if you were to sell your 2% yield bond on open market, you have to discount it at a loss (because why buy your 2% when I can buy a 4%?). If you hold it to maturity, you lose nothing whatsoever and get paid at the yield stated.

This is an example of what brought down banks in recent years. They had “safe” holdings in longer term treasuries paying safe, albeit low yields (compared to today’s yields). They had liquidity issues when too many people were withdrawing money and were forced to sell the bonds at a loss.

It looks like a ladder of different dated treasuries all the way through 2033. No point in doing anything with them, but hold while they pay the cheap yields or else you sell for a loss. Best case scenario, Fed takes interest rates back down significantly and those gain value again. (The reality of Fed taking that action or the “why” is another discussion entirely.)

Imagine if money managers had to pay penalties if they underperformed market averages instead of just getting less bonuses.

Chef's kiss

Tmac said:

Are you charting some things? Got a list? What lead you to this conclusion?

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It's a macro play, the 2000 companies are all low cap stocks that are usually in debt to some degree, a high interest rate environment is terrible for them. Rate cuts directly benefit them, so every chart for these companies is atrocious, until the rate cuts happen. Every hedge fund is pounding the desk for rate cuts to add or see returns on this % of their balanced portfolios.

not defending that at all, but what was the mgr told? preserve wealth? zero risk?

fris said:

preserve wealth? zero risk?

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This is a fair point. While this is an awful strategy from our perspective, asset growth is not necessarily the goal of a late-stage retiree. In my 70's and 80's I would definitely forego returns to be 100% bulletproof sure that I'd have enough money to last until I die.

While the S&P has been up a shit-ton on average in the last three years, it also fell by 45% at one point (12/21-10/22), which is much scarier than lost gains to a retiree.

Calls everyday.