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Post by chang on Dec 8, 2022 18:28:11 GMT
6 month Treasury auction just announced in the last hour yielding 4.556%. I can’t see any reason not to move some MM into these.
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Post by chang on Dec 8, 2022 18:34:42 GMT
Anyone else think that corporate bonds aren’t showing reasonable extra yield over Treasuries for the credit risk, when there is still a risk of recession? VGSH duration / yield: 1.9 yr / 4.6% VCSH duration / yield: 3.1 yr / 5.7% There’s no 3.1 year treasury bill to compare to VCSH, but the difference in yield shown above must be partly due to the increase in VCSH’s duration, leaving very little yield attributable to credit risk. Since I’m already equity heavy, that’s why I’m looking at government bonds. If corporate bonds showed a bigger spread, I’d be interested. This proves my point: fixedincome.fidelity.com/ftgw/fi/FILanding#tbcurrent-yields|median-yield1-year AAA-AA corporates actually have a lower median yield than Treasuries until you get down to A and below. Of course, it depends upon the bond. There’s a 1Y JPM bond at auction right now yielding 5%.
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Post by sortatino2 on Dec 8, 2022 19:06:10 GMT
Rates will be 1% higher in 6 months according to futures market. Not sure why you would buy 6 month Treasury now and likely take loss on price if you sell and if you don't sell you can do better in MM. Schwab Money Market ($1M minimum) 7 day Yield at 3.95%. Should go to 4.4%+ in 6 days. Then 4.9%+ start of February based on Futures market . Zero risk and pretty soon better yield than 6 month. Rates start declining based on futures market in Nov/Dec 2023 and then only 0.25 cut.
I am regretting missing the gains over the last 1 month in HY Muni and other Bonds but have been happy and continue to be happy hiding out being 100% in MM making money with zero risk. With 4-5% returns over the next 1 year continues to be reasonably attractive until a better opportunity comes along in stocks and/or bonds
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Post by chang on Dec 8, 2022 19:16:19 GMT
I won’t sell, so how would I take a loss? I can get 4.556% right now for six months, or get a lower rate while waiting for (maybe) a higher rate…?
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Post by sortatino2 on Dec 8, 2022 19:20:59 GMT
You will make more in MM over the same time period and keep your options open. 4.45% from next week to start of Feb (2 months). And 4.95% from Feb to June (4 months). A free lunch.
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Post by retiredat48 on Dec 8, 2022 19:27:27 GMT
Retired 48, As of today. Vanguard website says 10 year US treasury note is 3.486%. (auction). If it gets to 4%, I'll buy some. OK. And why did you not buy some a month ago when yield was 4+%? Just curious. Did you have a forum "ah ha" moment and say yes, locking in a ten year yield at 4% or more will help my portfolio? If so, great. R48
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Post by retiredat48 on Dec 8, 2022 19:29:08 GMT
6 month Treasury auction just announced in the last hour yielding 4.556%. I can’t see any reason not to move some MM into these. Admin〵chang,...I think bankrupt Wachovia Bank was once AAA. Sure, you or me may capture some yield that you perceive is there by buying an individual bond. But why would I think I can do better than those bond professionals in the mutual funds, who are selecting same? Why bother? R48
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Post by retiredat48 on Dec 8, 2022 19:35:50 GMT
You will make more in MM over the same time period and keep your options open. 4.45% from next week to start of Feb (2 months). And 4.95% from Feb to June (4 months). A free lunch. sortatino2 ,...but your "free lunch" in MM Funds may last for only a few months to a half year. Going longer locks in a good rate. And if you wait to buy longer term, when MM fund rates peaking, those LT rates may not be available. That's the tradeoff. They don't ring a bell to start rate declines in long dated maturities. An anecdote...I had a 60 year old mother who during the 1970's took my advice and bought money market funds and high yield junk bond funds. Yields were at about 13% on MM; 15% on high yield. Soon, I felt rates would fall. I could not teach her the concept of maturity or duration. That the 10 year duration junk bond fund would provide a good yield for a long time; the MM fund only a short time. MM fund distributional yield started falling...falling fast. She eventually moved all to the junk bond. She loved it...and got a good yield for a long time. But she missed out on higher, peak rates. R48
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Post by sortatino2 on Dec 8, 2022 19:48:27 GMT
I agree R48 . Chang was talking about 6 months which is what I was responding to. Like you I will jump at another shot at long term 4% . I regret as mentioned in my post missing the recent shot.
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Post by FD1000 on Dec 8, 2022 22:07:18 GMT
You will make more in MM over the same time period and keep your options open. 4.45% from next week to start of Feb (2 months). And 4.95% from Feb to June (4 months). A free lunch. sortatino2 ,...but your "free lunch" in MM Funds may last for only a few months to a half year. Going longer locks in a good rate. And if you wait to buy longer term, when MM fund rates peaking, those LT rates may not be available. That's the tradeoff. They don't ring a bell to start rate declines in long dated maturities. An anecdote...I had a 60 year old mother who during the 1970's took my advice and bought money market funds and high yield junk bond funds. Yields were at about 13% on MM; 15% on high yield. Soon, I felt rates would fall. I could not teach her the concept of maturity or duration. That the 10 year duration junk bond fund would provide a good yield for a long time; the MM fund only a short time. MM fund distributional yield started falling...falling fast. She eventually moved all to the junk bond. She loved it...and got a good yield for a long time. But she missed out on higher, peak rates. R48 The free lunch has been going for months already and will continue. I didn't use CD/treasuries who paid a bit more than MM, because MM is great for trading. For months now I posted that trading will show up, it always does at some point, I just don't know when. But I rang the bell several weeks ago. Either you are a trader or not. If you are not, then you hold for years, otherwise we are all traders. Yield is never the ultimate indicator I'm looking for, because TR also includes appreciations. There are hundreds of managed bond funds to select from. ST(months) is different from longer term=years. HY pays more than most other categories, but the risk is higher and sometimes a lot higher. The key is always to find good risk/reward funds. Duration is another inaccurate measure. Basically, if you depend on Duration, Yield, Sec and use vanilla funds, the reward is never going to be great. I posted weeks ago that LQD could make 10-15% from the bottom, that equal stock performance. Yield is another myth, I helped several friend and relative. First, I teach and educate. Then, I tell them that TR is the number one measure in any portfolio, then comes risk/SD. That keeps your portfolio out of trouble. I also kept it very simple, one trade per year, maybe 2. They held PIMIX for years. They held HY Munis for years too. Examples: 2021: All bonds are in HY munis 2022: sell all bonds at the beginning of the year and invest in MM, invest back all bonds in HY Munis several weeks ago. We know ST rates are controlled by the Fed. That means stay away. We know the market controls LT rates, keep loading. The chart below proves my point. The 10 year treasury fell much more than the 2. Keep watching the charts, they always tell you what to do in real time. R48: "They don't ring a bell to start rate declines in long dated maturities." FD: YTD I rang the bell several times. Since early this year, I posted what do almost every month. Early 2022 = sell all, use MM, in June use CD/treasuries, in Nov invest in IT-LT duration bond funds. Attachments:
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Post by Chahta on Dec 9, 2022 14:13:12 GMT
retiredat48: "Sure, you or me may capture some yield that you perceive is there by buying an individual bond. But why would I think I can do better than those bond professionals in the mutual funds, who are selecting same? Why bother?" Not following you here. Are you saying buying Treasuries is not as smart as buying a fund?
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Post by retiredat48 on Dec 9, 2022 15:54:17 GMT
retiredat48 : "Sure, you or me may capture some yield that you perceive is there by buying an individual bond. But why would I think I can do better than those bond professionals in the mutual funds, who are selecting same? Why bother?" Not following you here. Are you saying buying Treasuries is not as smart as buying a fund? EITHER is acceptable...both: --buying individual bonds, and constructing bond ladders and using them, if the investor likes. Especially can't do much harm with Treasuries. But takes time. --buying a mutual fund or ETF (or CEF)...TReasuries buying is almost "commoditized"...not rocket science. Vangd has expense ratios of like 0.04. Let them do the work. Some have spread what I call misinformation on the rate of total return received. Chang is a busy person...why spend it at the margin seeking highest return for a few more basis points. R48
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Post by retiredat48 on Dec 9, 2022 15:58:24 GMT
BTW Those other investors who bought longer term, like VGIT and TLT...hope the large cap gains made to date hold thru XMAS, when we can tip a glass of champaign together!
Beats money market fund returns. Got a year's interest worth in one month.
Ditto the PDI and PDO special year end distributions!
R48
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Post by mozart522 on Dec 9, 2022 18:21:36 GMT
retiredat48 : "Sure, you or me may capture some yield that you perceive is there by buying an individual bond. But why would I think I can do better than those bond professionals in the mutual funds, who are selecting same? Why bother?" Not following you here. Are you saying buying Treasuries is not as smart as buying a fund? Me either. a 6 month ST bond fund will hold older bonds that are not yielding as much as a 6 month treasury. I do not believe that MM funds (Vanguard at 3.79) will be above 4.55 in 6 months. In other words I am assured to get a 2.27% TR in 6 months while MM will trying to catch up, even if they are at 5% six months from now, their return will include al the lower rates while they get there. And what if it is 50 bp and then pause, I'll still be my 4.55% for sure. In short, you don't hold a 6 month treasury fund for only 6 months but you do hold a 6 month t-bill for only 6 months.
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Post by FD1000 on Dec 10, 2022 4:32:59 GMT
BTW Those other investors who bought longer term, like VGIT and TLT...hope the large cap gains made to date hold thru XMAS, when we can tip a glass of champaign together! Beats money market fund returns. Got a year's interest worth in one month. Ditto the PDI and PDO special year end distributions! R48 That's what I said weeks ago. When the market tells you that bonds are in, you should go with longer duration bonds, or at least better IT duration....NEVER TREASURIES. I'm not talking about TLT, these are very LT ones. Ditto with VGSH. When bonds had the biggest loss in decades and finally turn around, why would you go with the most conservative option = treasuries? See what the following made since 11/7/22: VGSH=ST Tre...VGIT=IT Tre...DODIX=High-rates bonds....ORNAX=HY munis...LQD=IG Corp duration=8.7 years VGSH=1.1%...VGIT=3.6...DODIX=5.5%...ORNAX+LQD=8.3-8.4%. In less than a month, ORNAX made 2.5 times more + volatility was lower. BTW, look at MAINX, it beat TLT with amazing performance, I only invested a few days. Who says bonds are boring? Attachments:
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Post by chang on Dec 10, 2022 8:09:41 GMT
I decided to wait until after the (expected) 0.5% Fed rate hike next week. There will be another auction of 6M T-bills on the 15th (as well as a 5Y TIPS note).
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Post by chang on Dec 10, 2022 8:14:12 GMT
retiredat48 : "Sure, you or me may capture some yield that you perceive is there by buying an individual bond. But why would I think I can do better than those bond professionals in the mutual funds, who are selecting same? Why bother?" Not following you here. Are you saying buying Treasuries is not as smart as buying a fund? Me either. a 6 month ST bond fund will hold older bonds that are not yielding as much as a 6 month treasury. I do not believe that MM funds (Vanguard at 3.79) will be above 4.55 in 6 months. In other words I am assured to get a 2.27% TR in 6 months while MM will trying to catch up, even if they are at 5% six months from now, their return will include al the lower rates while they get there. And what if it is 50 bp and then pause, I'll still be my 4.55% for sure. In short, you don't hold a 6 month treasury fund for only 6 months but you do hold a 6 month t-bill for only 6 months. I was thinking the same thing. A ST fund like VGSH will be holding dozens of T-bills bought over the last 1-3 years at lower yields than what I can buy right now, since rates have been climbing rapidly. What my would I buy VGSH and hold (for example) for six months, instead of buying the 6M T-bill being issued this week, which has the highest yield of all? I can’t see the sense of it, and I plan to buy the next 6M note due for opening on 12/15.
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Post by fishingrod on Dec 10, 2022 12:05:48 GMT
Chahta, chang, mozart522, I know you all would rather have the stated yield from an individual bond these days. I am not trying to change anyone's mind on that. Just musing on the bonds that are inside a fund such as VGSH. If one bought the fund today, the bonds inside the fund would already be repriced to reflect today's yield from current bonds of the same maturity and credit profile, as close as possible. The repricing of bonds inside the portfolio doesn't give one a higher coupon, but rather a yield to maturity on those bonds to match the current bonds on the market. That doesn't mean that if interest rates rise that again those bonds wouldn't be repriced lower, they would. Just like your individual bond will be repriced lower. And if interest rates lower the existing bonds again would get repriced higher to match the current markets bonds YTM and coupons being issued. It really comes down to yield from a newly issued bond vs. YTM on an already existing bond, whether that be an individual bond or a bond inside a fund. I know I am beating a dead horse but there seems to be a lot of that around here. www.investopedia.com/terms/y/yieldtomaturity.asp
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Post by chang on Dec 10, 2022 12:33:08 GMT
fishingrod Thanks, you’re not beating a dead horse at all, this is excellent analysis. You’re saying that when I buy VGSH, I’m buying older bonds with lower coupons, but I’m paying lower prices than they originally sold for, so I’m getting today’s yield. Makes perfect sense. Only question is: if rates continue to rise (which they will), if I buy a $1,000 6-month T-bill today, its value on the secondary market will fall BUT I will get my stated yield AND my $1,000 back in six months. If I buy VGSH instead, the NAV will fall, and I won’t get that back in six months. Eh….?
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Post by fishingrod on Dec 10, 2022 13:25:26 GMT
chang , says "Only question is: if rates continue to rise (which they will), if I buy a $1,000 6-month T-bill today, its value on the secondary market will fall BUT I will get my stated yield AND my $1,000 back in six months. If I buy VGSH instead, the NAV will fall, and I won’t get that back in six months. Eh….?" _________________________________________________________________________________________________________________
You are correct perhaps. On the other hand, the fund will have bonds maturing before your single bond and it will be capturing higher rates from those newly reinvested proceeds. This is not to say that your one individual bond might protect your money better than a fund. I don't know whether you caught this article by John R. from M* that I had posted before, but it is a good one, on bonds funds vs. bonds. It doesn't explicitly address your situation, but has some good info.
Today’s Market: Bonds vs. Bond Funds By John Rekenthaler
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Post by Chahta on Dec 10, 2022 13:38:12 GMT
FD1000: "When bonds had the biggest loss in decades and finally turn around, why would you go with the most conservative option = treasuries?" I'm not sure anyone knows bonds (or equities) have turned around. I can think of several reasons. 4% is a very good safe return. Many folks are happy with that for a portion of their AA. It can make taking RMDs less dramatic. It can provide a cash source for living expenses without disturbing more volatile holdings in this turbulent market. It can be money set aside for adding to equity AA. In short we all cannot trade in and out for a great TR. Yes I own treasuries now but have used maturing ones to buy into bond OEFs. You know I also do the HY muni trade with a portion of my portfolio as some "fun". There I said it.
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Post by mozart522 on Dec 10, 2022 13:51:05 GMT
fishingrod, chang, But we are mixing apples and oranges somewhat. A six-month T-bill is not the same as 2 year bond fund. You would normally expect VGSH to do better because of longer maturity (really no maturity) and more risk both from duration and rate changes. It is problematic to think that a .5% rise in Dec. will automatically bump yields in both equally. Both are reasonable investments depending on your goal. In my case, I'm using 6 month T-bills each month since August knowing I will get 1/2 that stated yield back each month Starting in January. I want those to balance the VGLT (long term treasury fund) I believe will have large returns as the FED pauses and we go into recession and then lowers rates. I have already seen it increase by over 10% in the last month. Yes, it may drop after the next rate hike, but I can wait and collect the yield. The NAV is still down 25% or so and that will likely be recaptured at some point. So just balancing a sure thing with a speculative thing, while I sit out equities for the time being.
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Post by FD1000 on Dec 10, 2022 14:01:10 GMT
I'm going to repeat myself...why VGSH has been a "bad" idea in 2022. Early 2022: all bonds do terrible. Stay in MM 06-11/2022: the bird-in-the-hand CD/Treasury have done better + zero risk. 11/2022: The Fed blinks = IT-LT bond funds. After 10 bad months, we haven't seen for decades, bonds turned around and you go with VGSH?
VGSH now? Why even consider this inferior option when 6 months treasury will give you about 5% next week GUARANTEE with no SD/risk. We already posted many pages about VGSH, and it's still a bad choice. Either you go for MM/CD/treasury or take more risk in better times and make a lot more.
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Post by mozart522 on Dec 10, 2022 14:02:16 GMT
BTW Those other investors who bought longer term, like VGIT and TLT...hope the large cap gains made to date hold thru XMAS, when we can tip a glass of champaign together! Beats money market fund returns. Got a year's interest worth in one month. Ditto the PDI and PDO special year end distributions! R48 That's what I said weeks ago. When the market tells you that bonds are in, you should go with longer duration bonds, or at least better IT duration....NEVER TREASURIES. I'm not talking about TLT, these are very LT ones. Ditto with VGSH. When bonds had the biggest loss in decades and finally turn around, why would you go with the most conservative option = treasuries? See what the following made since 11/7/22: VGSH=ST Tre...VGIT=IT Tre...DODIX=High-rates bonds....ORNAX=HY munis...LQD=IG Corp duration=8.7 years VGSH=1.1%...VGIT=3.6...DODIX=5.5%...ORNAX+LQD=8.3-8.4%. In less than a month, ORNAX made 2.5 times more + volatility was lower. BTW, look at MAINX, it beat TLT with amazing performance, I only invested a few days. Who says bonds are boring? "NEVER TREASURIES". VLTCX (long corp) had the same return in the last month as VGLT, without the credit risk. It is also the place investors go when the recession hits and credit risk is high then. After the recession LT corps would be better, perhaps. A month isn't a long time in most investors lives, but I get the feeling it is in yours.
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Post by fishingrod on Dec 10, 2022 14:09:15 GMT
mozart522, Agreed! I also have to state again that it is the YTM, if one could in theory hold a bond fund to "maturity" that gives us a view of the discounts/premiums on the bonds inside the fund. The coupon/yield stays the same on the life of a bond whether it be a single held bond or a bond inside a fund. But one can get capital appreciation from a discounted bond or capital depreciation from a bond that is bought at a premium and held to maturity, again the same for an individually held bond or bonds inside a fund.
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Post by yogibearbull on Dec 10, 2022 14:16:11 GMT
fishingrod , one problem with that M* JR article is that he is using mark-to-market in all his comparisons, even for individual bonds/treasuries to conclude that they are no better than funds. But most who buy short/medium-term bonds/Treasuries hold them to maturity and that changes the results as it takes out the duration effect of funds. I pointed this out elsewhere, LINK.
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Post by chang on Dec 10, 2022 14:23:10 GMT
FD1000: "When bonds had the biggest loss in decades and finally turn around, why would you go with the most conservative option = treasuries?" I'm not sure anyone knows bonds (or equities) have turned around. I can think of several reasons. 4% is a very good safe return. Many folks are happy with that for a portion of their AA. It can make taking RMDs less dramatic. It can provide a cash source for living expenses without disturbing more volatile holdings in this turbulent market. It can be money set aside for adding to equity AA. In short we all cannot trade in and out for a great TR. Yes I own treasuries now but have used maturing ones to buy into bond OEFs. You know I also do the HY muni trade with a portion of my portfolio as some "fun". There I said it. And *IF* all we’re doing here is bottom fishing and catching a bounce on oversold assets coming out of a bear market, *SURELY* there are better asset classes to play this game with than *OPEN-END BOND FUNDS*?
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Post by fishingrod on Dec 10, 2022 14:34:35 GMT
fishingrod , one problem with that M* JR article is that he is using mark-to-market in all his comparisons, even for individual bonds/treasuries to conclude that they are no better than funds. But most who buy short/medium-term bonds/Treasuries hold them to maturity and that changes the results as it takes out the duration effect of funds. I pointed this out elsewhere, LINK.
I Thank You for pointing this out. It indeed makes a huge difference. He should compare to different individual bonds held to maturity in different periods of time.
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Post by retiredat48 on Dec 10, 2022 15:09:13 GMT
fishingrod Thanks, you’re not beating a dead horse at all, this is excellent analysis. You’re saying that when I buy VGSH, I’m buying older bonds with lower coupons, but I’m paying lower prices than they originally sold for, so I’m getting today’s yield. Makes perfect sense. Only question is: if rates continue to rise (which they will), if I buy a $1,000 6-month T-bill today, its value on the secondary market will fall BUT I will get my stated yield AND my $1,000 back in six months. If I buy VGSH instead, the NAV will fall, and I won’t get that back in six months. Eh….? I want to give a SHOUT-OUT to fishingrod ( fishingrod ,) who is stating restating (his past posts) well. The total return includes the rise in eventual price of the discounted bonds in the fund portfolio. FD keeps harking on one small time period VGSH was not optimal. Several good buy times have occurred since. I am not losing on VGSH. But also have huge gains in VGIT and TLT. Also I have money in MM Funds awaiting further deployment. Yes, bond funds as time marches on may have rates go up or down...doesn't matter if you bought. I will repeat for umpteenth time the BOND RULE OF THUMB is in play...always. That is, you get the starting total yield for that day, if held to duration, regardless of the direction of interest rates. Buy a five year treasury bond fund at 4%, hold for 5 years, you get approx 4% annualized regardless of rate changes. And if rates continue up, your bond fund manager will continue to take, as a minimum, maturing bonds at par, and reinvest the monies into the new higher rates, so your distributional income keeps pace...keeps rising. The reason I am in treasuries now, and not corporates, is that I consider the yield spread not great enough--if we get a recession, I suspect corporate bond yields will rise further, and treasury bonds, with flight to quality, will fall in yields, giving a cap gain...(happened last 30 days ??). If we get a couple high profile bankruptcies as headlines, expect corp bonds to fall more in price. Yes, if one wants to lock in a corp bond at 1% more in yield, go ahead. I'm simply trying to maximize here, use historical knowledge, and reduce risk. BTW many bond gurus are also saying 5 year treasuries is currently the sweet spot. David Geroux (TRP) says his fund has never owned a treasury bond...but does now! R48
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Post by chang on Dec 10, 2022 18:24:30 GMT
The yield spread for corporates-treasuries is minuscule and, in some maturity ranges, nonexistent (for higher IG). The market seems to be saying virtually no chance of recession. And yet the yield curve…
That’s why I’m buying treasuries as well. Plan to buy the 12/15 announced 6M bills.
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