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Some one sent me this. Is this a time to buy long term bonds ?

30 year T-bond yields have only been lower than they are now 4 times since 1977. Each time, they shot back up within the month. The lowest they have EVER been since 1977 was 4.126.

Right now they are at 4.39.Barring an unforseen disaster like the great depression, I would saythat there is a zero chance that yields go below 4.126.

That means your worst outcome is a 6% loss. I bought $4K at 4.4, so I am lookingat a worst case scenario of 6.2% loss. The other issues are that thefund has a relatively high expense ratio of 1.4%, so if rates do not go up fairly rapidly, you start getting nickel and dime on expenses.

However, considering that 30 T bond yields have been higher than they are right now 99% of the time in the last 31 years, I think it is highly unlikely that they could stay this low for more than a few months. The fed can't possibly lower interest rates much more than they already have. If they raise, and you bought RRPIX at 4.39, youwill make a killing. 10 year T-bonds have a slightly longer history going back to 1962,they have only been below their current yield 3 times since then.

Los,

I think that you are loking at this backwards.  Remember, as interest rates go up, the value of a bond goes down.

Bryan 

Profunds Rising Rates Opportunity Fund has a hefty 1.46 percent annual expense ratio according to Morningstar. Even more important, its goal is to get a return equal to 1.25x the change in long bond price. While I see the allure of going short long bonds at what may be a cyclical low for interest rates, I think you need to consider how much tide you are swimming against in terms of cost.

First, there is the expense ratio. Obvious and substantial.

But then there is what happens when you short a bond. You are responsible for the interest coupons. Meanwhile, the actual money in the fund is in cash, which earns a good deal less. So you're also losing a negative spread that is probably in excess of 2 percentage points a year. While your appreciation in the short position can be substantial, you'll always be swimming against a tide of costs that are substantial.

This was a very different bet at the other end of the cycle. Back in 1981 long Treasuries were yielding over 13 percent. Analysts like Steve Leuthold in Minneapolis could write about how they were a virtual sure thing because of the power of the coupon--- even if interest rates rose still more. Those who bought long bonds then actually did better than most stock investors did, in spite of a historic bull market.

Scott