ok I feel stupid asking this,but here goes

[ucodegen]

Just so there is no misunderstanding – if you buy a $1000 10-year bond @ 3.5% and hold it to maturity, you will collect $350 in interest over 10 years and then you’ll get your $1000 back, and it does not matter in the slightest what happens to 10-year rates.

Furthermore, if you buy a 10-year bond now and then sell it 5 years from now, and invest the proceeds into a 5-year bond at whatever the interest rate is in 2015, by 2020 you will still have $1350, give or take a few dollars.

First paragraph is correct, but the second paragraph isnt. The selling price has to be ‘discounted’ by the difference between the bonds yield and current risk free rate of return.

[Eugene]

[quote]First paragraph is correct, but the second paragraph isnt. The selling price has to be ‘discounted’ by the difference between the bonds yield and current risk free rate of return.[/quote]

Yes, but the discounting will be exactly offset by the higher yield of the “new” 5-year compared with the “old” 10-year.

[Eugene]

[quote]First paragraph is correct, but the second paragraph isnt. The selling price has to be ‘discounted’ by the difference between the bonds yield and current risk free rate of return.[/quote]

Yes, but the discounting will be exactly offset by the higher yield of the “new” 5-year compared with the “old” 10-year.

[Eugene]

[quote]First paragraph is correct, but the second paragraph isnt. The selling price has to be ‘discounted’ by the difference between the bonds yield and current risk free rate of return.[/quote]

Yes, but the discounting will be exactly offset by the higher yield of the “new” 5-year compared with the “old” 10-year.

[Eugene]

[quote]First paragraph is correct, but the second paragraph isnt. The selling price has to be ‘discounted’ by the difference between the bonds yield and current risk free rate of return.[/quote]

Yes, but the discounting will be exactly offset by the higher yield of the “new” 5-year compared with the “old” 10-year.

[Eugene]

[quote]First paragraph is correct, but the second paragraph isnt. The selling price has to be ‘discounted’ by the difference between the bonds yield and current risk free rate of return.[/quote]

Yes, but the discounting will be exactly offset by the higher yield of the “new” 5-year compared with the “old” 10-year.

[Eugene]

[quote=clearfund]If you believe rates will be rising and we are in a Treasuries bubble (which I believe) since we are at historically low rates/high values then one option is to buy a Short US TBill ETF fund or an Ultra Short TBill ETF.

You will get a very correlated inverse return and thus will make money as rates rise. Go for the ETF versions (just google short tbill etf) as the fees are minimal and liquidity is high.[/quote]

Generally speaking, betting on the rise in the 10-year and being short T-bills are two different things.

Suppose you sell short a $1000 10-year note. You have $1000 in cash and you are now responsible for the interest on the bond you sold short. Therefore, unless the interest on the 10-year moves favorably, you will be losing money on that investment (at the rate of $35/year). Even if the 10-year yield rises over time, you might end up losing money, unless it rises fast enough.

You might want to put your cash into some short-term investment – maybe into 1-year notes. If the efficient markets model is applicable to the bond market for the next 10 years, the amount of money you make by holding short-term bonds will turn out to be exactly the same as as the amount of money you have to spend paying interest on the 10-year bond you sold short. (1-years are currently yielding 0.32%, so the market expects that yield to rise a lot sometime in the next 5 to 10 years.)

[Eugene]

[quote=clearfund]If you believe rates will be rising and we are in a Treasuries bubble (which I believe) since we are at historically low rates/high values then one option is to buy a Short US TBill ETF fund or an Ultra Short TBill ETF.

You will get a very correlated inverse return and thus will make money as rates rise. Go for the ETF versions (just google short tbill etf) as the fees are minimal and liquidity is high.[/quote]

Generally speaking, betting on the rise in the 10-year and being short T-bills are two different things.

Suppose you sell short a $1000 10-year note. You have $1000 in cash and you are now responsible for the interest on the bond you sold short. Therefore, unless the interest on the 10-year moves favorably, you will be losing money on that investment (at the rate of $35/year). Even if the 10-year yield rises over time, you might end up losing money, unless it rises fast enough.

You might want to put your cash into some short-term investment – maybe into 1-year notes. If the efficient markets model is applicable to the bond market for the next 10 years, the amount of money you make by holding short-term bonds will turn out to be exactly the same as as the amount of money you have to spend paying interest on the 10-year bond you sold short. (1-years are currently yielding 0.32%, so the market expects that yield to rise a lot sometime in the next 5 to 10 years.)

[Eugene]

[quote=clearfund]If you believe rates will be rising and we are in a Treasuries bubble (which I believe) since we are at historically low rates/high values then one option is to buy a Short US TBill ETF fund or an Ultra Short TBill ETF.

You will get a very correlated inverse return and thus will make money as rates rise. Go for the ETF versions (just google short tbill etf) as the fees are minimal and liquidity is high.[/quote]

Generally speaking, betting on the rise in the 10-year and being short T-bills are two different things.

Suppose you sell short a $1000 10-year note. You have $1000 in cash and you are now responsible for the interest on the bond you sold short. Therefore, unless the interest on the 10-year moves favorably, you will be losing money on that investment (at the rate of $35/year). Even if the 10-year yield rises over time, you might end up losing money, unless it rises fast enough.

You might want to put your cash into some short-term investment – maybe into 1-year notes. If the efficient markets model is applicable to the bond market for the next 10 years, the amount of money you make by holding short-term bonds will turn out to be exactly the same as as the amount of money you have to spend paying interest on the 10-year bond you sold short. (1-years are currently yielding 0.32%, so the market expects that yield to rise a lot sometime in the next 5 to 10 years.)

[Eugene]

[quote=clearfund]If you believe rates will be rising and we are in a Treasuries bubble (which I believe) since we are at historically low rates/high values then one option is to buy a Short US TBill ETF fund or an Ultra Short TBill ETF.

You will get a very correlated inverse return and thus will make money as rates rise. Go for the ETF versions (just google short tbill etf) as the fees are minimal and liquidity is high.[/quote]

Generally speaking, betting on the rise in the 10-year and being short T-bills are two different things.

Suppose you sell short a $1000 10-year note. You have $1000 in cash and you are now responsible for the interest on the bond you sold short. Therefore, unless the interest on the 10-year moves favorably, you will be losing money on that investment (at the rate of $35/year). Even if the 10-year yield rises over time, you might end up losing money, unless it rises fast enough.

You might want to put your cash into some short-term investment – maybe into 1-year notes. If the efficient markets model is applicable to the bond market for the next 10 years, the amount of money you make by holding short-term bonds will turn out to be exactly the same as as the amount of money you have to spend paying interest on the 10-year bond you sold short. (1-years are currently yielding 0.32%, so the market expects that yield to rise a lot sometime in the next 5 to 10 years.)

[Eugene]

[quote=clearfund]If you believe rates will be rising and we are in a Treasuries bubble (which I believe) since we are at historically low rates/high values then one option is to buy a Short US TBill ETF fund or an Ultra Short TBill ETF.

You will get a very correlated inverse return and thus will make money as rates rise. Go for the ETF versions (just google short tbill etf) as the fees are minimal and liquidity is high.[/quote]

Generally speaking, betting on the rise in the 10-year and being short T-bills are two different things.

Suppose you sell short a $1000 10-year note. You have $1000 in cash and you are now responsible for the interest on the bond you sold short. Therefore, unless the interest on the 10-year moves favorably, you will be losing money on that investment (at the rate of $35/year). Even if the 10-year yield rises over time, you might end up losing money, unless it rises fast enough.

You might want to put your cash into some short-term investment – maybe into 1-year notes. If the efficient markets model is applicable to the bond market for the next 10 years, the amount of money you make by holding short-term bonds will turn out to be exactly the same as as the amount of money you have to spend paying interest on the 10-year bond you sold short. (1-years are currently yielding 0.32%, so the market expects that yield to rise a lot sometime in the next 5 to 10 years.)

[ucodegen]

Yes, but the discounting will be exactly offset by the higher yield of the “new” 5-year compared with the “old” 10-year.

You are forgetting transaction costs. There is no point in the sale/purchase at the 5 year point if it ends up being a wash. All you are doing is feeding the broker. Second part of the problem is that if the interest rates are rising as the sale/purchase is being done, the discount will be affected by anticipations of further rate increases.

[ucodegen]

Yes, but the discounting will be exactly offset by the higher yield of the “new” 5-year compared with the “old” 10-year.

You are forgetting transaction costs. There is no point in the sale/purchase at the 5 year point if it ends up being a wash. All you are doing is feeding the broker. Second part of the problem is that if the interest rates are rising as the sale/purchase is being done, the discount will be affected by anticipations of further rate increases.

[ucodegen]

Yes, but the discounting will be exactly offset by the higher yield of the “new” 5-year compared with the “old” 10-year.

You are forgetting transaction costs. There is no point in the sale/purchase at the 5 year point if it ends up being a wash. All you are doing is feeding the broker. Second part of the problem is that if the interest rates are rising as the sale/purchase is being done, the discount will be affected by anticipations of further rate increases.

[ucodegen]

Yes, but the discounting will be exactly offset by the higher yield of the “new” 5-year compared with the “old” 10-year.

You are forgetting transaction costs. There is no point in the sale/purchase at the 5 year point if it ends up being a wash. All you are doing is feeding the broker. Second part of the problem is that if the interest rates are rising as the sale/purchase is being done, the discount will be affected by anticipations of further rate increases.

[Author]

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