Bonds and Interest Rates

[jeff2]

1900- 1929 Rates up Bond Bear
1929 - 1946 Rates down Bond Bull
1946 - 1982 Rates up Bond Bear
1982 - 2020 Rates down Bond Bull
2020 - ........ Rates up Bond Bear?

Discuss

 

[Not getting younger]

1900- 1929 Rates up Bond Bear
1929 - 1946 Rates down Bond Bull
1946 - 1982 Rates up Bond Bear
1982 - 2020 Rates down Bond Bull
2020 - ........ Rates up Bond Bear?

Discuss

In theory and practice, lower rates encourage people to spend, higher rates discourage spending. That’s the premise behind it. Tightening money supply. Consider also debt accumulation. In the last 50 years, consumer debt has exploded. So have the markets. Look at where any Index was in the 60s. Look where it is today.

Very strong argument can be made, that much of our growth in gdp, and our lives, is thanks to people going into debt up to their eyeballs. Without all that debt, our lives would not be what they are.

The more people spend, the better companies do, the more profitable, the more people they hire, the better paychecks and bonuses, the better their performance on the markets. There’s also the school of thought that all available information is priced in.

you might also want to look at yield curves.

The Hutchins Center Explains: The yield curve - what it is, and why it matters | Brookings

The Hutchins Center explains what the yield curve is and what it tells us.

www.brookings.edu

.

 

[Coolsin000]

1900- 1929 Rates up Bond Bear
1929 - 1946 Rates down Bond Bull
1946 - 1982 Rates up Bond Bear
1982 - 2020 Rates down Bond Bull
2020 - ........ Rates up Bond Bear?

Discuss

In theory and practice, lower rates encourage people to spend, higher rates discourage spending. That’s the premise behind it. Tightening money supply. Consider also debt accumulation. In the last 50 years, consumer debt has exploded. So have the markets. Look at where any Index was in the 60s. Look where it is today.

Very strong argument can be made, that much of our growth in gdp, and our lives, is thanks to people going into debt up to their eyeballs. Without all that debt, our lives would not be what they are.

The more people spend, the better companies do, the more profitable, the more people they hire, the better paychecks and bonuses, the better their performance on the markets. There’s also the school of thought that all available information is priced in.

you might also want to look at yield curves.

The Hutchins Center Explains: The yield curve - what it is, and why it matters | Brookings

The Hutchins Center explains what the yield curve is and what it tells us.

www.brookings.edu

.

That is true. However, the flow of money is not really circulating back the market because people are either house poor, luxury-non-essential-trap poor or taxed poor.

Furthermore, those who have a lot of cash on hand, they are holding on until the market rebound. Or potentially waiting to buy any valuable corporate stocks for their investment portfolio?

 

[tdot.playboy]

Shouldn't we be Bond Bull right now
when rates goes up, Bond provide better return rates.
Also when rates goes up, money supply goes down, which sometime causes either
a) recession : so S&P gives negative return, bonds, golds give better return
b) slowdown : S&P gives near to zero returns, bonds and golds give better returns.

Three factor we should consider
1. Inflation
a) Rates up due to inflation.
b) Bringing supply chains from China to Northam - will add to inflation - which means rate remains higher for longer
c) Wage spiral induced inflation - started to show now, see all strikes happening around - so inflation remains higher - making rates remain higher.
2. Debt is high (more in CA than US) so CA bonds can perform differently than US bonds in short term (3-5 years).
3. Geo-politics (middle east + ukraine/russia situation). if lets say it escalates, both interst rate and inflation will stay higher due to money printing.

I am rookie, just trying to learn. please explain if I got anything wrong.

 

[MayorQuimby]

Shouldn't we be Bond Bull right now
when rates goes up, Bond provide better return rates.
Also when rates goes up, money supply goes down, which sometime causes either
a) recession : so S&P gives negative return, bonds, golds give better return
b) slowdown : S&P gives near to zero returns, bonds and golds give better returns.

Three factor we should consider
1. Inflation
a) Rates up due to inflation.
b) Bringing supply chains from China to Northam - will add to inflation - which means rate remains higher for longer
c) Wage spiral induced inflation - started to show now, see all strikes happening around - so inflation remains higher - making rates remain higher.
2. Debt is high (more in CA than US) so CA bonds can perform differently than US bonds in short term (3-5 years).
3. Geo-politics (middle east + ukraine/russia situation). if lets say it escalates, both interst rate and inflation will stay higher due to money printing.

I am rookie, just trying to learn. please explain if I got anything wrong.

I believe it's bond prices we're measuring. Those who bought 1% bonds at $100 at $101 coupon value in 2020 are now HODLing a lower value bond, because current bond yields are way higher.

So why would an investor pay $100 for 1%, when they can get 5% and earn $105. So the 2020 bondHODLer has to lower the price of the bond.

I believe this was what caused Silicon Valley Bank to enter a crisis, because their bond's value and yields were less than current bonds.

 

[tdot.playboy]

I believe this was what caused Silicon Valley Bank to enter a crisis, because their bond's value and yields were less than current bonds.

100% - banks were holding bonds in their portfolio which if they mark to market become useless; at the same time if people demand their deposit, bank has no liquid cash to pay their depistors - classic bank run case.
bank could have borrowed against their bonds, but as they value less, they were not able to raise money.

 

[sprite09]

Shouldn't we be Bond Bull right now
when rates goes up, Bond provide better return rates.
Also when rates goes up, money supply goes down, which sometime causes either
a) recession : so S&P gives negative return, bonds, golds give better return
b) slowdown : S&P gives near to zero returns, bonds and golds give better returns.

Three factor we should consider
1. Inflation
a) Rates up due to inflation.
b) Bringing supply chains from China to Northam - will add to inflation - which means rate remains higher for longer
c) Wage spiral induced inflation - started to show now, see all strikes happening around - so inflation remains higher - making rates remain higher.
2. Debt is high (more in CA than US) so CA bonds can perform differently than US bonds in short term (3-5 years).
3. Geo-politics (middle east + ukraine/russia situation). if lets say it escalates, both interst rate and inflation will stay higher due to money printing.

I am rookie, just trying to learn. please explain if I got anything wrong.

bullish on bonds if you think central banks are
done cutting and going to cut rates sooner rather than later (since bond prices move inversely with rates). buy long duration bonds since their values would change more than shorter duration bonds when rates change (ie greater interest rate risk).

Bloomberg - Are you a robot?

www.bloomberg.com

 

[Not getting younger]

I don’t have the desire to get too into things but you need to understand yield.

Shouldn't we be Bond Bull right now
when rates goes up, Bond provide better return rates. Also when rates goes up, money supply goes down, which sometime causes either

Bonds when issued, assuming they are issued at present rates. Trade at par. $100. They also have maturities with different lengths.

over time, as rates increase above what a bond was issued at, the price goes down. So while it’s true that bond A, pays a lower interest rate than bond B. Bond A, will sell for less ( at a discount) to account for the lower rate. So the buyer is made whole. The buyer buys a bond, and earns a yield, that’s the same as bond B, at present rates.

Same is true of “discount” notes. They trade at a discount to par. ($100). For example if one year rates today were 10%. The US treasury, CDN T-Bill or any other discount note would trade at $90. So that in a years time when the bill matures, the buyer receives face value or $100. A yield of 10%.

$10 return on something worth $100.

When buying something where the rate is higher. ( say it was issued at 10% but rates are 5%) It will trade at a premium. So your initial cost is higher. When it matures at face value ( par) the interest received, plus face less initial..

Same with dividends and dividend yield. The price you pay for a share vs the dividend rate. As the price of stock goes up, the yield is lower. If the price tanks, and you buy at a low price and will receive $2.00 in dividends/share.Your yield is higher.

As far as maturities go. There are maturities every Thursday of every week.