Advice on 30 Year Treasury Bond Rate

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Q: will the 30 year treasury bond ever regain its bellwether status ?
i miss the long bond ! yes they brought it back3 yrs ago but it ain’t the same..that lower risk 10 year remains the bellwether. i miss trading bond futures…they’re not as liquid and haven’t been for a decade. trading ten year futures is boring…5 yrs more so… need to bring back the days when bonds moved 3-4-5 points like in the 80’s and early 90’s..with a steep curve, and even at sub-5%, our idiots at treasury still think that financing america through lower 2 yr treasury rates is cheaper than through long bonds. treasury is committing a mistake similiar to those who in the last 4 years financed their mortgages with low teaser rate arms and now face higher long term fixed rates as opposed to having bot homes at long 30 yr fixed costs of 5%. but of course, uncle sam bailed them out last week and froze their rates ( in a free makt economy ???) through the HOPE NOW ALLIANCE ( you gotta be kidding me…HOPE!)

A: You have to have high inflation in order to get the volatility in bond pricing. Bond prices are elastic in inflation volatility.

I wouldn’t want the long bond. Look at the inflation outlook.

Q: Question about 30 year treasury bond?
Why would a company use a 30 year tresury bond to measure the risk free rate?

these bonds are essentially free of business risk.

they capture the long-term inflation expectations of investors associated with investments in long-term assets.

these bonds are essentially free of interest rate risk.

Or all or those choices wrong?

A: The first answer is correct

The second answer is wrong

The third answer is really wrong

Q: What is the interest rate on a Unites States Treasury Bond?
I have three $50 Unites States Treasury Bonds, and I was just curious to the interest rate that accumulates on the the bonds. The bonds cease interest after 30 years, and I have had mine for around 16 years, so I have no plans at the moment to collect the money.

Does anyone know how much interest is gained each year, or how much it will be worth in 30 years?

Thank you.

A: If it is a Savings Bond, it will be worth $50 at the end of 30 years. It was purchased for $11 in 1993. It increases in value every year until it reaches $50. It was “sold at a discount”.

If it is a 30 year bond, the interest rate is apx 6%. You would know if it was this type of bond because you would receive a check for your interest twice a year. You would get the $50 original investment back in 14 years.

Q: Rate on government debt?
I am very confused about what this term means. It seems to me that the 30 year treasury bond rate is one way to measure this, but I don’t exactly understand what this is either. If I wanted to research statistics for this, what kind of numbers would they be? I could really use some help with this!

A: Rates on government debt vary by maturity (how long you have to hold the debt before you get your original invesmtnet back) and also by quality (roughly a measure of the likelihood that you’ll get your money back).

Treasury bills have maturities of one year or less, and Treasury bonds have maturities up to 30 years. There are other bonds backed by various government agencies that are considered to have slighly lower quality than Treasury bonds.

In general the lower the credit rating on a bond, the lower the interest rate will be. Rates also tend to be lower on bonds with very short maturities. As the maturity gets longer, the chance that the value of the principal will be eroded by inflation goes up, so interest rates go up to compensate investors for taking that extra risk.

Q: What is the difference between the US Treasury 10 year bond and the US Treasury 10 year note?
I am looking for a chart that moves together with 30 years mortgage fixed rates.
I read that it moves together with the US Treasury 10 year bond: do you know where I can find a chart of the US Treasury 10 year bond?

A: There isn’t much of a practical difference between the 10 year note and bond. Notes can be issued with a maturity between 2 and 10 years, and a bond from 10 to 30 years. If you are looking for something that moves with the mortgage rates, you will want to look at the 10 year note rather than the bond because that is the dominate security quoted when talking about long-term rate movements.

Here is a chart from Yahoo Finance of the 10 year note rate: http://finance.yahoo.com/q/bc?s=%5ETNX&t=5y&l=on&z=m&q=l&c=
You also might find this article helpful:

http://www.urbandigs.com/2007/11/bond_yields_mortgage_rates_no.html

Q: Should I take lump-sum retirement now or next year?
I plan to retire within the next two years. My company is changing the way it calculates lump-sum payments from the 30-year Treasury rate on 1/1/2008 to a corporate bond rate. So if I retire on 1/1/2009 the corporate bond rate will be in effect, but I am not told what that rate will be. Can someone explain to me how the company might figure the lump sum payment and how do these bond rates come into play?

A: Off the subject kind of but… does your plan allow you a Direct Rollover option? In this case you would be doing a tax-free direct transfer of your pension funds to a Traditional IRA (Rollover or Conduit). From this plan you can take small payments as you wish or on a set schedule or you can leave the funds alone to accumulate interest until you are required to withdraw at age 70 1/2.

Taking a Lump Sum distribution is a huge hit to your income, depending on the amount in your plan. It may be in your best interest to seek tax advice from a qualified tax consultant who is able to see your entire porfolio in order to better advise you.

Q: Which investment has a greater interest rate risk?
Which has greater interest rate risk, a 30 year Treasury Bond or a 30 year BB corporate bond? Why?

A: The 30 year BB corporate bond will have lower risk because it will have the higher coupon rate, because of the higher default risk. The coupon is where most of the expected return comes from, and it doesnt change with interest rate changes, not the par value which is affected by price swings and therefore interest rate swings. The fact that the maturities are equal makes the answer easier.

Q: I am currently investing about $30,000 a year in corporate bonds rated BBB or higher. What?
alternatives are there to corporate bonds that return about 6% annually with similar risk?
I looked at municipal bond funds, but most of these return about 3% Muni bond funds that yield more than this charge you a hefty front load.
Treasury bonds are a joke, as are CD’s, and other similar investments.
I looked at minimizing my risk by getting into a corporate bond fund, but, not only do these yield less than 6%, but they also charge a sales load- not worth it either.
I am currently invested in Goldman Sachs corporate bonds ($20,000 @ 6.35%) and Selective Insurance Group ($12,000 @ 6.7%).
FYI- I am in the 25% tax bracket; 40 years-old. I will be investing about $30,000 a year for the next 10 years, then retire to go live a more simple and frugal life with the interest from all my investments.
I am trying to “purchase an income” that will last for a long time, so please don’t suggest the stock market, or any other risky investment.

A: Unfortunately, bonds are not without risk. If interest rates rise, you will find out what I mean. GS bonds are probably a safe bet and the interest rate is good enough.

Putting all of your money into just two bonds though does subject you to a great deal of specific risk besides interest rate risk.

There are some closed end bond and preferred stock funds that do pay greater than 6%. Some actually sell at a discount to net assets. You many not be interested in the preferred stock funds, but I am throwing them in just in case.

JTP is one preferred stock fund. Its portfolio is rated BBB or better. Its distribution is currently at 7.4% and it sells at a discount of about 3% to net assets.

http://www.cefconnect.com/Details/Summary.aspx?ticker=JTP

Among the bond funds are the following: HSP is one that looks like it might meet your criteria. It does sell at a slight premium to net assets. It pays 6.2% currently.

Now I know you are not interested in stocks but I am going to pitch a few anyway. MCD, KO, PG, CLX, and ABT all pay a dividend of greater than 3% currently and they all have a long history of raising their dividends annually (more than 25 years). Now that 3% does not look too attractive compared to your 6% currently. But in 10 years you will still be receiving your 6%, and these will pay be paying at least that much if not more based on your current cost if history is indication. In 20 years you will still be receiving your 6% and these will be paying 12% based on your current cost. In addition to that you should reasonably expect an appreciation in the value of these during that time. It is doubtful that you will see any appreciation in your bond portfolio.

There are also a few stocks that do pay greater than 6% in dividends. They are not of the same quality as the ones mentioned above. They are LPs (limited partnerships). Historically, they have done pretty well, at least the pipeline LPs. As long as the US relies on natural gas, I suspect they will continue to do well. ETP, PAA, MMP, KMP are a selection.

Q: what is the bond that is directly correlated to the interest rates on a 30 year mortgage?
Can someone tell me a specific bond or instrument (ticker symbol please) that has a direct correlation with mortgage interest rates. Something that I can pull a chart up and analyze. The fed just cut rates by 1.25% in a couple weeks and mortgage rates went up. I have asked this before and people have said the 10 year treasury note is what i should watch. i see divergences between the 10 year and mortgage rates so I don’t believe that is the correct bond.

Can someone give me a link to a chart of the bond that is directly correlated with the rates of a 30 year mortgage.

thank you

A: I aways thought the 30-year Treasury Bond (^TYX) was an indicator of investor sentiment of long term economic future, which also includes 30 year fixed rate mortgages.

Q: About bond calculation? help~?
Your uncle has just inherited from your grand-father a 30-year Treasury bond that was
originally issued in 1987. This semi-annual coupon Treasury bond has a 8% annual
coupon rate, a $1,000 par value, and 10 years remaining until maturity. The current yield
to maturity on this bond is 7%.
(a) Your uncle plans to sell this bond to you today for $1,000. Should you take his offer?
(b) Now assume you bought this bond today for $1,000 from your uncle. You will keep
the bond for a year and then sell the bond to pay for graduate school based on the
market price at that time when the bond’s yield to maturity is 6.5%. At what price
would you sell this bond?
(c) What would be your one-year return on this investment (please consider the time
value of money)?

A: The 10-year Treasury Note (or Bond) price is $1071.10 today.
So….
a) you should buy the bond from your uncle for $1000
b) Sell at $1101.00. This would be the price of a 9-year Treasury with an 8% coupon rate (with semiannual coupons) and YTM of 6.5%.
c) Your uncle gave you a YTM of 8% when you purchased the bond. With YTM reaching 6.5% in 1-year your return on investment is 17.67%. Thank your uncle for selling you the bond so cheaply.

Q: If you could borrow money at 0.3% interest* for 30 years to invest in some productive endeavor now, would you?
That’s zero-point-three percent, not three percent.

If you could borrow at this absurdly cheap rate, don’t you think you could find some investment opportunity which would earn a positive return? I mean, all you’d have to do is beat .3% annually, so wouldn’t it be smart to borrow as much as you could?

If you’re sane and correctly answered “yes,” then shouldn’t the government do so as well? Excepting the tax cut provisions, most of the spending in the stimulus bill has an ROI far in excess of the nearly non-existent cost of borrowing right now.

* Figures are expressed in real terms. To compute the real interest rate, take nominal interest rate – inflation rate. Inflation rate cited is the average over the period 1914-2007, which is 3.4% annually. Cited nominal interest rate is the yield on a 30-year US Treasury Bond as of close-of-market today, which is 3.70%.

3.7% – 3.4% = 0.3%
My Brain,

Yes. As I already mentioned, the investments in question have an ROI far exceeding the cost of borrowing.
I have no doubt interest rates will rise eventually. In the mean time though – smoke ‘em if ya got ‘em.
My Brain (again),

It varies for each line-item. The process is very simple though – from the government’s perspective, just figure the increase in tax revenue provided by the spending, subtract the cost, and then divide the numerator by the cost of the outlay. It’s no different than the process every business in the world uses.

Now, as to figuring the benefits, that’s pretty simple too, just incredibly involved. Let’s take the smart electric grid as an example. The costs are easy, as the market determines the price. For the benefit, you need to first determine the gross private investment (wind turbines and the like) the public expenditure will attract. Next are the incomes paid to those employed in constructing the private assets – including workers and companies – and find the average effective tax rate on these folks. From this, you can compute the government’s ROI, which takes the form of tax revenue. But we’re not done yet, oh no.
To calculate the rest of the demand-side effect, determine the Marginal Propensity to Consume of aforesaid individual and corporate employees, which gets you the multiplier effect. Like before, just figure the IRS’s cut, and you’ve got the short-run benefit.

For most projects in the bill, the demand-side effect alone pays for the outlay. However, the real benefit occurs on the supply side. To determine the supply-side impact, we need to first compute the profitability of the wind- and solar farms the grid will enable. Here, we can again figure Uncle Sam’s cut, and add that to the total return. We also need to include the salaries of the employees, the profits of contractors – basically, the long-term multiplier. At this point, we can get a pretty clear picture of the total ROI, but to be uber-accurate, there’s still one more piece.

That’s the externalized costs of competing sources (i.e. coal) that the grid abates. This starts to become very uncertain, but it is worthwhile to know.
I should mention though – in the CBO figures, only the immediate multiplier effect is computed. And of course, the farther out you go, the less precise we can be, but this risk isn’t due to some innate ineffectiveness on the part of government; uncertainty is present in all such computations.

So yeah, that’s a very crude description of how it works. Again, it’s no different from how any business plans investment decisions.

Oh, and one other thing worthy of note – the supply-side effect I mentioned, manifested as the profits of wind farms, wages of employees, and the like? Well that’s a reflection of new wealth being created – something cons bizarrely insist is impossible.
“You have to also consider that the currency you borrow today may be worth substantially less than it is now.”

Umm… if we have protracted “big inflation,” it would actually increase ROI. Let’s say that, instead of 3.4% inflation, we have 10% inflation on average over the life of these investments. That means the real interest rate is:

3.7% – 10.0% = -6.3%

While it is highly unwise to allow such high inflation, negative real interest rates would substantially increase ROI, as the cost of borrowing would negative.

Sorry, but your claim is only applicable to countries which have to issue bonds in a foreign currency. Treasuries are fixed-income securities issued in US dollars; Treasury pays holders of these securities a fixed number of dollars, irregardless of movements in the forex markets.
“borrowed ‘cheap’ money over the past 13 years to ‘invest’ in consumer goods, over-valued property and fantasy investments.”

Which is why I’m advocating precisely the opposite of that.

“In short, today’s problems have exposed the downside of your short-sighted smoke ‘em while you got ‘em thinking.”

That’s not my view at all. I was merely speaking to the fact that you want to finance your investments when interest rates are low. I agree that short-sighted policies have inflicted great damage on the USA.

“If it were easy as borrowing money from a bank to buy Treasury Bonds then the government would have been encouraging ‘investment’ all these years instead of ’spending.’”

That’s what you’d think, isn’t it? Yet, that’s not what happened. For a long time, the government ran deficits to encourage consumption. This is idiotic; deficit spending should finance productive investment.

A: yes, in a heartbeat!

Q: how much do i need to invest in order to earn 1′800$ in yearly returns from treasury bonds?
i’m trying to find out a ball park figure amount to invest on 10-20-30 year maturity bonds where the interest rate or annual payout per year is around 1′800 i’ve been reading alot but don’t fully understand how it works

A: honestly, if you have that much to invest (it would be thousands), you might want to talk to a professional, not get info here.

Q: Is the interest rate on US Treasury Bonds (4.375%) an APY or a 1 time fee?
I can see a big problem if it is APY, as the US government is spending $1.525 trillion [combined] on the bank industry, auto industry, and the new economic stimulus package/restoration act.

(1/30th) + (.04375) x 30 years = $2,983,281,250,000! this means we are borrowing 1.525 trillion, and paying just under 3 trillion back!

1.59171875 trillion isn’t too bad I suppose, but my generation will still have to pay it back through increased taxes…

A: It’s the annual return although it’s more complicated than that.

Your concept is correct. If a person lends the government $1,000 in the form a treasury bill that pays 4.375% per year and it’s paid back over 30 years, it costs a lot more.

Same principle applies when you take out a mortgage. If you borrow $100k, you end up paying back about 3 times that in payments over 30 years.

The bigger issue with all the extra debt is that as the government borrows more, they have to pay more in interest every year which crowds out other uses of that money which in turn leads to more borrowing. There is a limited supply of people, nations, etc. to borrow money from so if people like you and me decide to go to the bank to get a mortgage, there are fewer funds available which leads to higher rates.

And yes, ultimately our taxes will have to go up dramatically to pay for this and for the already existing obligation for Medicare and Social Security

Q: The Risk Structure of Interest Rates?
I would really appreciate it. Thank you!!

The risk structure of interest rates studies the behavior of interest rates for bonds with the same term to maturity but different risk characteristics. Which of the following combinations of bonds provides the best situation to study the risk structure of interest rates?

A. A three-month Treasury bill vs. a 30-year Treasury bond

B. A 30-year Treasury bond vs. a corporate Aaa bond

C. A six-month Treasury bill vs. a corporate Aaa bond

D. Six-month commercial paper vs. a seven-year Treasury note

E. Three-month commercial paper vs. a corporate Baa bond

A: The best combination to observe the risk structure is option B: a 30 year Treasury bond and a corporate Aaa bond. The reason for this is simple. A 30 year Treasury bond and a corporate Aaa bond have similar terms so the term structure is constant, therefore, the primary difference is the risk structure. To further explain this answer I’ll eliminate the other options.
Option A does not work because they are the same type of security–government securities–so they have the same risk (which, by the way, is virtually zero).
Option C does not work because those bonds of vastly different terms–6 months vs. about 30 years
Option D does not work because those bonds are also of vastly different terms–6 months vs. 7 years
Option E does not work because they are both vastly different terms and they are the same type of security–corporate debt

Therefore, Option B is the correct choice because it compares different types of securities (government vs. corporate) of similar terms (about 30 years).

Q: Present value of an annuity problem?
Present Value of Annuity Problem
A 30 year treasury bond is issued with face value of $1,000, paying interest of $60 per year. If the going rate for similar risk bonds increases shortly after the T-bond is issued, what happens to the 30 year Treasury bond’s: Do they go up, down or stay the same?
a. coupon rate
b. price
c. yeild to maturity
d.current yield

A: a) stays the same
b) goes down
c) goes up….discount rate goes up.
d) goes up

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