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Only the coupon payment is the safe part. If you buy a 10y treasury that yields 2%, and yields run to 4%, you'll lose a lot of money and be worse off than if y
by adam_arthur 5y ago
Only the coupon payment is the safe part.
If you buy a 10y treasury that yields 2%, and yields run to 4%, you'll lose a lot of money and be worse off than if you were in cash
- manquer 5y agoOnly if inflation was less you would be better of with cash in that scenario. At 7% that is still better deal than cash
- adam_arthur 5y agoThat's only true if you're comparing holding a bond until expiry vs holding cash for the same time. Assume I have a 10y bond. I can buy it today for 2%. Or, I can sit in cash. Next month the yield goes up to 3%. I buy it then with my cash. I made more money by holding cash rather than the bond. Cashflowing assets are only a good inflation hedge after they've been valued using an appropriate discount rate for that inflation. Both equities and bonds are not valued appropriately for the level of inflation we have, because market participants still believe in transitory. But that belief is being shaken. Personally, I would hold cash over bonds or equity right now.
- dannyw 5y agoIf you hold for 10 years you'll earn exactly 2% pa.
- adam_arthur 5y agoAnd if inflation persists at 7% the 10y rate will greatly exceed 2% in a short span of time. So you can be stuck with 2% today, or wait a short amount of time and possibly get 3-4% Bonds are mispriced right now. Of course, just my opinion.