Bond Question?

PANDA_IHB

PANDA_IHB

New member
In a hypothetical hyper-inflation situation where rates spike up, is it possible for money markets to pay 10% + interest and would this be the right time to get in a long term 30 year fixed bond (bond prices are low and dividend yields are high)? I do not know much about investing in bonds and would appreciate any insights.



iShares Barclays 20+ Year Treas Bond (TLT) - i found this etf for 20+ year bond, what is the ETF ticker for a 30 year bond?



Panda
 
[quote author="PANDA" date=1241989021]In a hypothetical hyper-inflation situation where rates spike up, is it possible for money markets to pay 10% + interest and would this be the right time to get in a long term 30 year fixed bond (bond prices are low and dividend yields are high)? I do not know much about investing in bonds and would appreciate any insights.



iShares Barclays 20+ Year Treas Bond (TLT) - i found this etf for 20+ year bond, what is the ETF ticker for a 30 year bond?



Panda</blockquote>


In an environment of increasing interest rates, bond values fall. Buying long term bonds is just about the worst possible investment one could make right now.



It is certainly possible for money markets to pay 10% or more. Money market rates were very good in the early 80s. Short term bonds are a good place to park money in a rising interest rate environment because you get to turn your money over into higher interest rates periodically.
 
yup, you don't want to be locking in the historically low yield we are experiencing.





you should read a basic bond investing website, there are a bunch of good ones for us consumers (as opposed to the pros).
 
No.

Just because interest rates are 10%+ does not mean they can not go higher.

The idea is to Wait until one sees interest rates starting to fall and then go long bonds, but I do not think you can even purchase a 30 yr T note as an individual. I think ten year notes will be adequate.

And I do not know of a 30 year T note ETF.

And I would not worry about it right now. Good plan for much later.
 
Thanks for responding to my question. I am not talking about buying long term bonds now as the rates are low, but in a hypothetical situation where hyper-inflation kicks in where rates start to spike up between 12% - 16%, what would be the optimal investment action to take?



Let's also assume hypothetically 12 month later a massive deflation will kick in where mortgage rates will drop like a rock to 3-4% level. What would be the right strategy when rates are at 10% - 15% in the midst of hyper-inflation? Do I want to lock in a 5 year CD or buy a 30 year bond. If rates rise to 10 - 15%, I know that bond prices will be crushed. Will this be right time to go long on bonds? What's the best way to play this?
 
iShares Barclays 20+ Year Treas Bond (Ticker: TLT)



This is one of the ETFs I am looking at. I noticed that this Bond ETF pays a consistent dividend every month. If we are in a situation of hyper-inflation will the TLT shares drop like a rock down to $40 - $60 levels and pay higher dividends? I guess where i am a little confused is that if the rates are high we want to lock long term, possibly buy a 5 year CD. How does this exactly work with a 20+ Year Treas Bond like TLT?
 
Agree with IR, in a high rate environment you don't want to investing in long duration, if you try to profit off the hyperinflation play, buy gold or TIPS.
 
I personally like TIP over the next 2 years, and JNK at the moment, though not sure how long the good times will be lasting for JNK. The yield on junk bonds and investment grade corporates is outrageous at the moment (in a good way). Enjoy it while the good times last!
 
Panda is educating himself on bonds and would like some confirmation from some of you bond experts on IHB if what i am saying is correct. A Vanguard longterm bond ETF is (BLV) The current price on the bond is $72.70. Every month a dividend payment of $0.334 is made, therefore I will be paid $4.104 annually per share making my annual yield 5.7%. If the price of the bond crashed down to $36. My dividend payment will still be $4.104 annually, making my annual yield 11.4%. Is my thinking correct? Is the dividend payment the same every month or does it change? What determines that change?
 
[quote author="PANDA" date=1243817617]Panda is educating himself on bonds and would like some confirmation from some of you bond experts on IHB if what i am saying is correct. A Vanguard longterm bond ETF is (BLV) The current price on the bond is $72.70. Every month a dividend payment of $0.334 is made, therefore I will be paid $4.104 annually per share making my annual yield 5.7%. If the price of the bond crashed down to $36. My dividend payment will still be $4.104 annually, making my annual yield 11.4%. Is my thinking correct? Is the dividend payment the same every month or does it change? What determines that change?</blockquote>


Why do you talk about yourself in the 3rd person?
 
[quote author="PANDA" date=1243817617]Panda is educating himself on bonds and would like some confirmation from some of you bond experts on IHB if what i am saying is correct. A Vanguard longterm bond ETF is (BLV) The current price on the bond is $72.70. Every month a dividend payment of $0.334 is made, therefore I will be paid $4.104 annually per share making my annual yield 5.7%. If the price of the bond crashed down to $36. My dividend payment will still be $4.104 annually, making my annual yield 11.4%. Is my thinking correct? Is the dividend payment the same every month or does it change? What determines that change?</blockquote>


Assuming it is a fixed rate bond the rate they pay will be the same every month. The return is determined by the 'coupon' which was decided when the bond was first written. There are other bonds which change on a specified schedule (e.g. floating rate notes - usually track an index) or bonds which dont pay anything until the bond matures (zero coupon bonds).
 
You must log in or register to reply here.
Back
Top