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US Treasuries

Posted by jdavis on August 31, 2014

One of our big investment holdings is the bonds of the United States. They are called Treasuries. (In the UK they call them Gilts).

The next chart shows the price movement of US Treasuries (USTs)

TLT FUND - Long term US Government Treasuries

If you look at the 2nd Half of 2013 you see the price falling.  During this time, practically every single markets' commentator was bearish on USTs.  Prices will now fall 'forever', Get out while you can, The end of the World is nigh etc was in the press and on TV/radio time after time.

At the time we sighed and read and watched quizzically.  We could not understand what on earth they were - almost to a man and woman - talking about.  So, while fund managers globally were selling their Government Bonds, we were recommending to buy more at cheaper prices.

Then 2014 started.  And Hey Presto!   The price is 18% higher (in US$) than 2 January 2014 (the first day of the New Year for the markets).  And the associated interest yield (for 30 year terms of borrowing) has fallen from     c 3.9% to c 3.1%.  The trend in yield remains down (as of course the interest rate trend has been down for 40 years) and the trend in price for Government Bonds remains up.

The trend is the trend until it is no longer.

All those portfolio managers who sold in 2013 have been buying back - at higher and higher prices.

So, as Jonathan Davis wrote for Fund Strategy, to be published in September 2014, we are receiving income (the interest yield) and capital growth.  What's not to like?



Aren't you worried that investors will eventually lose faith in the US' ability to service and let alone repay the debt. When that confidence crisis occurs, treasuries could be decimated in value. Of course it is impossible to predict the timing, but holders of treasuries could get caught out.

Posted by Reinhard Schu on September 5, 2014 at 11:39 a.m.

My opinion is irrelevant. The charts have been telling me USTs will rise. When the trend turns to down then we'll alter accordingly.

Rarely - ever? - do major indices fall 30% in a day or two. Caught out is not reasonable when you're talking advised assets.

Posted by Jonathan Davis on September 5, 2014 at 11:58 a.m.

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