US Treasurys have not been so popular for a long while. Does this mean that the Treasurys are suitable investments for every portfolio? Let's explore on.
Firstly, to the uninitiated, US Treasury bonds are low risk, fixed income securities issued by the US federal government. Given US reputation as a world leading economy, the federal government would do all it can to repay the debts.
Having said that, low risk does not mean no risk. The 🌎 is constantly revolving. There are signs of dysfunctional US government. With US supporting both Israel and Ukraine wars, US war funding has continued to balloon 🎈 in the face of ever increasing deficit to $1.695 trillium in fiscal year 2023. With a Republican-controlled House and Democrat-controlled Senate, it is a wonder if they could agree or achieve anything useful for the people in the streets.
Yes, US federal government itself is a risk in this ever changing 🌎! Of course with both House and Senate at loggerheads, there's the looming 17 November 2023 government shutdown to look forward to. However, the looming shutdown is not likely to affect US Treasury bonds if that is your concern. At least not directly.
Despite shutdown, the US federal government will still pay the bonds coupons (which is the interest for bondholders). The real risk lies in reputation damage of the US government and its dysfunctional system. Credit rating agencies Fitch and S&P cut their US debt credit rating some time ago from AAA to AA+, citing government instability. The potential shutdown might caused Moody's to join its mates to do that, potentially pressuring long-term Treasury bonds!
Long story short, yes, the Treasury bonds are not without risk.
Quick turn to the trend and noise surrounding Treasurys. Looking at the charts, it is easy to understand why more people (retail investors and billionaires alike) are joining the Treasurys queue. We have to go back to roughly 20 years to find similar yield from US Treasury bonds. As explained above, with US Treasury bonds still considered one of the safest investments, it seems foolish not to be in the game. Even a famous Billionaire's hedge fund has recently thrown in the towel making bets against Treasurys, further fueling the rise in bond prices!
The trend for a yield inverse is definitely there, especially if you study the long term Treasury yield. The default is for the yield to return to normalcy. That will bring TLT towards 120 target indicated by the green line in the monthly chart. The light green line is the first target I have setup, while red line is a possible gap to fill. But, it all looks promising as the risk reward ratio is favourable. Looks like besides collecting a nice fat yield along the ride, you get to gain equity like profit! What is there not to like?
We live in a strange 🌎. Yes, all is not the same. Yet human behaviour never changed. We are constantly challenged by greeds and fears. The Treasurys ride, I must warn readers, is anything but smooth. We will have self-doubts along the way, so it is not suitable for everyone. The key factor is your investment timeframe and motivation.
If you decide to hitch the ride, welcome aboard but stay the course. Remember there is the nice bond coupons to collect along the way (ask Warren Buffet if you don't believe 🤣). Enjoy your ride while you can because it might be another 20 years before you have another go at one... [Cool] [Tongue] [Facepalm]
@CaptainTiger @LMSunshine @Tigress02
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
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The move higher followed a Treasury auction that saw weak demand.