EDV: Pricing-In Long-Term Inflation Of 3-4%, Lowering Downside Risk (Rating Upgrade)

Harrison Schwartz
2023-10-26

Summary

  • Vanguard Extended Duration Treasury Index Fund ETF has lost half its value since early 2020 due to rising inflation and a positive stock-bond correlation, as I expected then.
  • EDV's losses have accelerated this year with the yield curve's abnormally steepening pattern.
  • The rise in the long end of the yield curve and the potential for an inflationary recession are vital factors affecting EDV's performance.
  • EDV is now pricing for 3-4% inflation over the next two decades, a reasonable assumption given debt issues and demographic trends.
  • The ETF could rebound if long-term rates peak and decline, but runaway inflation risks, debt monetization, and geopolitical strains could cause further decline.

William_Potter

Over the past two and a half years, I have had a relatively consistent bearish outlook on the long-term bond market. Initially, in early 2020, this outlook was due to my view that inflation would rise, causing the stock-bond correlation

Data by YCharts

Has the long end of the Curve Peaked?

Data by YCharts

Data by YCharts

Data by YCharts

Yield Curve Steepening Accelerates

Data by YCharts

Data by YCharts

Data by YCharts

The Bottom Line

Time to buy treasury as Ackman close short position?
Bill Ackman, who short on long-term US bonds, tweeted on October 23 that he had closed his position, and said the high yield of long-term US Treasury bonds was unsustainable. ------------ Is it time to buy the US treasury? Are you bullish or bearish on treasuries?
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