Last edited Wed Apr 17, 2024, 05:34 AM - Edit history (2)
Bond prices always move in the opposite direction to yields.
"why would people be SELLING Treasuries?"
For example, a few days ago I found the purchasing power of an S&P 500 equity fund (VFIAX) is up 12.90%, while that of the VCOBX bond fund (mixed government and corporate bonds, intermediate term) is down 21.78% in the 3 years to 4/9/24. (Edited to add: Those are total returns, including reinvested dividends and interest, and then adjusted for inflation /end edit). People just don't want any more of that kind of punishment.
As an old person, I have a 60%-40% equities to fixed income allocation. The portfolio has been massacred on the fixed income side of things (most of my fixed income holdings are intermediate term bond funds. VCOBX -- Vanguard Core Bond Fund -- is one of my holdings).
EDITED TO ADD:
https://www.investopedia.com/articles/bonds/09/bond-market-interest-rates.asp
Inflation is a bond's worst enemy. Inflation erodes the purchasing power of a bond's future cash flows. Typically, bonds are fixed-rate investments. If inflation is increasing (or rising prices), the return on a bond is reduced in real terms, meaning adjusted for inflation. For example, if a bond pays a 4% yield and inflation is 3%, the bond's real rate of return is 1%
In other words, the higher the current rate of inflation and the higher the (expected) future rates of inflation, the higher the yields will rise across the yield curve, as investors will demand a higher yield to compensate for inflation risk.
Note that Treasury inflation-protected securities (TIPS) ((and I-bonds -Progree)) can be an effective way to offset inflation risk while providing a real rate of return guaranteed by the U.S. government.7 As a result, TIPS can be used to help battle inflation within an investment portfolio..
1/4 of my fixed income allocation is in TIPS and I-bonds. This is the part of my fixed income portfolio that isn't suffering.
When inflation heats up,
some of the money that would have gone into bonds goes into commodities or commodity-related stocks like oil and gas companies. The lower demand for bonds causes bond prices to fall and the bad cycle for bonds begins. Some other bond money shifts to very short maturity investments like money market funds.
= new reply since forum marked as read
