One month after a forgettable and mediocre 2Y auction, moments ago the Treasury sold $48 billion in 2y paper in what was a clearly stellar auction, surprisingly so despite the sharp drop in yields across the curve which meant no concessions for buyers. Yet even so, at a high yield of 2.585%, the auction stopped 1.1bps through the When Issued. That said, this was one of the highest 2Y auction yields going back to the financial crisis, and was just shy of prior cycle high of 2.88% hit in Oct 2018, just bbefore the Fed was forced to end its tightening plans.
[This item is from today’s Wall Street Journal. The presentation here is intended to circumvent the WSJ paywall, for those who might not have a subscription]
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Someone has to step up and buy the treasuries the Fed is going to sell. Now there is an alternative- 2-3% for your medium term bonds instead of nothing, and avoid stock market risk. Now if inflation was 2% it’d be a lot better…
Except rates are destined to go up, which will put a lot of pressure on the high-flying prices. And if we do get into a recession, that usually means higher unemployment, could even put pressure on rent prices, which puts more pressure on RE prices…
That makes the 5 year breakeven inflation 3.24-.07 = 3.17% according to the Bloomberg data. That is an underestimate in my opinion so I will be buying some.
Edit. Corrected calculation
Also, a five-year tips auction will be announced on June 16 and the auction will be June 23
Were RE prices as high as they are today? IIRC there was a RE price deflation around '91, so mid-90’s was a good time in terms of prices (relatively and in hindsight).
I’m finally seeing asking price reductions for existing listings in the areas where I’ve been watching (SoCal). RE prices are as nuts today as they were in 2006, IMO, and the mortgage rates are finally starting to have an effect. At the bottom ~2.6% for a 30-yr fixed super conforming, borrowing $100K cost $400/mo. Now at 5.2% it costs $550/mo. At 7% it’ll be $665/mo. Market rent (again in SoCal) hasn’t kept up with the RE price increases (I’m pretty sure tenants just can’t afford it), so from an investor standpoint the high prices make less sense than ever. The “experts” I listen to don’t envision a drop of more than 10%, if at all. But I’m thinking we’re due for 20-30% here, especially if mortgages keep going up. More if there’s an actual recession (or even an expectation of recession that leads to large companies freezing hiring or even preemptive layoffs).
Sorry, but I can’t resist …
Fido CFP FIL IRA … DUCKSOUP
I understand CFP to mean Certifiable Financial Planner (or Certified)
I understand IRA to mean Individual Retirement Account
Fido and FIL are, showing my ignorance, new to me. Well, Fido used to be a cellular provider in Canada, but I suspect that’s not your target. I presume FIL is not related to the French language or the Dinar
Fido == Fidelity, or at least that’s how I’ve always understood it. FIL = Father In Law? That’s my best guess.
We have a long history on this site of using initials and aliases. Perhaps the most famous is “Ken’s site” which only the wackos that hang out here would know what that refers to.
back to my original question. Usually bonds are a good counter to stocks, why my FIL bought individual ones and not funds (so we don’t have forced cash outs) So are we safe if we hold TM
That depends on term length, and how high inflation gets. If the term is more than five years, I would look to sell in the next 6 to 18 months or hold for more than five years. My preference would be to sell during the upcoming recession … preferably toward the middle or last year of Uncle Joe’s term.
ETA: I presume you meant “safe” as not too unprofitable. If you meant “safe” as not losing principle, then you’re safe … out to 15 years.
Disclaimer: I’m not a prophet, soothsayer, financial know-it-all, or anyone of worth. I’m a husband and father. My opinion is worth exactly what it is to my wife, children, and what you paid for it.
