# why are u.s treasuries so cheap



## galway_blow_in (17 Apr 2015)

i know they are more expensive than they have been in decades but the ( TLT etf ) twenty year american goverment bond is paying more than twice as much as german goverment bonds and is also cheaper than french soverign debt

i know QE in europe is contributing to a reduction in yield but surely american treasuries are a far wiser investment right now or am i comparing getting a cold to a flu


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## Rory Gillen (23 May 2015)

And you have to keep that 20-year US Govt Bond for the full 20 years if you are to be sure of getting the circa 2% per annum return it is offering. If you are not sure why that is, then you need to learn about long-dated bonds, the difference between them and short-dated bonds, how each fares in inflationary times. If you don't do that, don't even consider buying a long-dated bond.

*Rory Gillen
GillenMarkets.com*


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## galway_blow_in (26 May 2015)

Rory Gillen said:


> And you have to keep that 20-year US Govt Bond for the full 20 years if you are to be sure of getting the circa 2% per annum return it is offering. If you are not sure why that is, then you need to learn about long-dated bonds, the difference between them and short-dated bonds, how each fares in inflationary times. If you don't do that, don't even consider buying a long-dated bond.
> 
> *Rory Gillen
> GillenMarkets.com*



I just happened to pick the TLT twenty year bond as an example , ten year or five year u.s treasuries are also cheaper than the equivalent French or german sovereign debt


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## Rory Gillen (30 May 2015)

You are comparing apples with oranges. There is a difference between the yield on US bonds and, say, German Bonds across the duration spectrum (i.e. 1 year, 3 year, 5 year, 10 year and 20 year duration) to reflect investors expectations of the exchange rate risk and future inflationary expectations. It's more complex than saying one is cheaper than the other because one offers a higher yield to maturity than the other.

*Rory Gillen
GillenMarkets.com*


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## galway_blow_in (31 May 2015)

Rory Gillen said:


> You are comparing apples with oranges. There is a difference between the yield on US bonds and, say, German Bonds across the duration spectrum (i.e. 1 year, 3 year, 5 year, 10 year and 20 year duration) to reflect investors expectations of the exchange rate risk and future inflationary expectations. It's more complex than saying one is cheaper than the other because one offers a higher yield to maturity than the other.
> 
> *Rory Gillen
> GillenMarkets.com*




Germany has long been  the ultimate safe haven when it comes to fixed income ( perhaps  only Switzerland surpasses ) so that may be a poor example but if you compare the situation of the usa to france for example , I cannot see how French debt is seen as a better buy than American treasuries , regardless of future expectations re_ currency or the likelihood of the fed raising rates


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## Rory Gillen (31 May 2015)

Long-term interest rates are set, normally, by the market. More recently, they are being set by central banks and if the ECB is buying up Eurozone debt it is doing so to bring long-term rates across Europe down, and into unison. Nothing wrong with your view, but you're up against the ECB, which wants long-term rates low in the Eurozone. Is it not better typified by Ireland, an insolvent country with a still sizeable annual government deficit, being able to borrow 10-year money at just over 1%? Without the ECB, Ireland would be paying a lot more to fund itself, which, of course, would stymy any recovery. Is Ireland a better credit risk than the US, clearly not!


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## galway_blow_in (31 May 2015)

Rory Gillen said:


> Long-term interest rates are set, normally, by the market. More recently, they are being set by central banks and if the ECB is buying up Eurozone debt it is doing so to bring long-term rates across Europe down, and into unison. Nothing wrong with your view, but you're up against the ECB, which wants long-term rates low in the Eurozone. Is it not better typified by Ireland, an insolvent country with a still sizeable annual government deficit, being able to borrow 10-year money at just over 1%? Without the ECB, Ireland would be paying a lot more to fund itself, which, of course, would stymy any recovery. Is Ireland a better credit risk than the US, clearly not!



i appreciate your replies and they are an education when it comes to the soverign debt market , i know a little about equities as ive been investing since 2010 but have never bought bonds , ive heard it said many times that the bond traders are always a better guide to the markets overall as they are the smartest investors of all


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## galway_blow_in (10 Feb 2016)

ten months later and i sure wish id followed up on my theory , treasures would have proved a tremendous buy


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## galway_blow_in (2 Jul 2016)

u.s treasuries hit record high on friday


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## Sarenco (2 Jul 2016)

As our American friends might might say, that's just Monday morning quarterbacking.  If you want to trade your instincts, then fire ahead.  But don't confuse strategy with outcome.


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## galway_blow_in (4 Jul 2016)

Sarenco said:


> As our American friends might might say, that's just Monday morning quarterbacking.  If you want to trade your instincts, then fire ahead.  But don't confuse strategy with outcome.



i recommended treasuries as an investment more than a year ago , what quarterbacking ?


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## Sarenco (4 Jul 2016)

Fair enough.  Perhaps you could consult your crystal ball and tell us what's going to happen over the next 12 months?


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## galway_blow_in (4 Jul 2016)

Sarenco said:


> Fair enough.  Perhaps you could consult your crystal ball and tell us what's going to happen over the next 12 months?



if at first you dont succeed , try try again eh ?


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## galway_blow_in (21 Aug 2019)

My four year old plus instinct has proven to be spot on


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## Sarenco (21 Aug 2019)

galway_blow_in said:


> My four year old plus instinct has proven to be spot on


How's that?  

When converted back to euro, the return on a US treasury fund hasn't been dramatically different to the return on a Euro government bond fund over the last four years.


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## galway_blow_in (21 Aug 2019)

Sarenco said:


> How's that?
> 
> When converted back to euro, the return on a US treasury fund hasn't been dramatically different to the return on a Euro government bond fund over the last four years.




Which yields do you think have further to fall?


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## Sunny (21 Aug 2019)

galway_blow_in said:


> Which yields do you think have further to fall?



I am going to say both to be honest...….Or maybe it will be the Euro ones. But the US curve could invert again so maybe the 5 year US treasury. But then again maybe the ECB will buy more so I am going to say the Euro ones. But wait, what if the Fed reduces rates and China decides to offload a truck load of US treasuries as part of a trade war....I give up. What's the answer?


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## Andrew365 (21 Aug 2019)

galway_blow_in said:


> Which yields do you think have further to fall?



All of them.......it is like a domino as the search for positive yields goes on there is less and less available and more slide into negative territories.


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## galway_blow_in (21 Aug 2019)

Andrew365 said:


> All of them.......it is like a domino as the search for positive yields goes on there is less and less available and more slide into negative territories.



Which have further to fall?


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## Andrew365 (21 Aug 2019)

galway_blow_in said:


> Which have further to fall?



Well if I was to look at the chart in this article Link I would guess the Spanish 10 Yr. I describe it as domino because investors want to match their maturity needs first, 5yr, 10yr etc. 

I am assuming institutional longterm bond investors are insruance companies / pension funds needing to match long term liabilities so they are seeking a relatively low risk yield, they Target the least risky countries first. Those yields start declining, they now have to shorter maturity or change country. That is why the riskiest debt in Europe is now pretty much the only yielding positive. 

The U.S is a different kettle but is already seeing yields moving down.


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## galway_blow_in (21 Aug 2019)

Andrew365 said:


> Well if I was to look at the chart in this article Link I would guess the Spanish 10 Yr. I describe it as domino because investors want to match their maturity needs first, 5yr, 10yr etc.
> 
> I am assuming institutional longterm bond investors are insruance companies / pension funds needing to match long term liabilities so they are seeking a relatively low risk yield, they Target the least risky countries first. Those yields start declining, they now have to shorter maturity or change country. That is why the riskiest debt in Europe is now pretty much the only yielding positive.
> 
> The U.S is a different kettle but is already seeing yields moving down.



I'd wager the U. S is seen as more of a safe haven than Spain, hence further scope to fall in my view


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## Sarenco (21 Aug 2019)

galway_blow_in said:


> Which yields do you think have further to fall?


Hang on Galway, are you making a new prediction?

I thought you were bragging about a call you made four years ago -


galway_blow_in said:


> My four year old plus instinct has proven to be spot on


Which wasn't really true, at least in euro terms.


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## galway_blow_in (21 Aug 2019)

Sarenco said:


> Hang on Galway, are you making a new prediction?
> 
> I thought you were bragging about a call you made four years ago -
> 
> Which wasn't really true, at least in euro terms.



I'm confident that U. S treasuries are still cheap relative to European debt, my thoughts in early 2015 have proven correct to date, identifying this may be bragging to some


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## Sarenco (21 Aug 2019)

galway_blow_in said:


> ...my thoughts in early 2015 have proven correct to date...


Again, how so?

How would an investor based in the Eurozone have benefitted from investing in a U.S. treasury fund over a Eurozone government debt fund in 2015?  In Euro terms, they would have ended up in pretty much the same position.

Maybe you'll be right this time.  Maybe not.


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## PMU (21 Aug 2019)

Sarenco said:


> When converted back to euro, the return on a US treasury fund hasn't been dramatically different to the return on a Euro government bond fund over the last four years.


Correct.  The yield to maturity on bonds in e.g. USD should not differ from the YTM of equivalent and equal grade bonds priced in e.g. EUR.   Capital markets are perhaps not that efficient but they will over time adjust exchange rates  accordingly.  So as you correctly point out the returns, when converted back to EUR, are not dramatically different, i.e. there is no such thing as a free lunch.  Otherwise you could arbitrage  between equivalent bonds denominated in USD and EUR.   You may get away with it in the short term but soon exchange rate changes will wipe out arbitrage possibilities.


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## galway_blow_in (21 Aug 2019)

Sarenco said:


> Again, how so?
> 
> How would an investor based in the Eurozone have benefitted from investing in a U.S. treasury fund over a Eurozone government debt fund in 2015?  In Euro terms, they would have ended up in pretty much the same position.
> 
> Maybe you'll be right this time.  Maybe not.



Because the buyer need not see today as the day they sell, U. S treasuries have much further to fall and are likely to see larger inflows


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## Sarenco (21 Aug 2019)

Surely the recent past proves definitively that there is no point beyond which bond yields can fall?  Zero is not a floor.

Regardless, you are forgetting the relative real term value of currency.

But hey, carry on.  I'm sure you've picked up on something the smartest guys (bond traders) in any investment bank have all missed.

Like I said, maybe you'll be right this time.  Or not.


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## galway_blow_in (21 Aug 2019)

Sarenco said:


> Surely the recent past proves definitively that there is no point beyond which bond yields can fall?  Zero is not a floor.
> 
> Regardless, you are forgetting the relative real term value of currency.
> 
> ...



Tell you what, I won't contribute to this thread again for a year and we can see if I was right or wrong.


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## Sarenco (21 Aug 2019)

galway_blow_in said:


> Tell you what, I won't contribute to this thread again for a year and we can see if I was right or wrong.


Right or wrong about what exactly?

Are you saying that an investor based in the Eurozone will do materially (say, 10%) better, in Euro terms, by investing in a a fund linked to a US treasury bond index (S&P US Treasury Index) over a Euro Government bond index (EGBI), adjusted for duration, over the next 12 months (ignoring costs and taxes)?

I'll happily take that bet.  

What's the stake?


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## joe sod (21 Aug 2019)

I see warren buffet now borrowing in euros and yen by issuing 20 and 30 year euro and yen bonds, berkshire hathaway is not exactly short of cash yet it sees this as a no brainer . He is famously not an investor in bonds yet he has no problem borrowing this ultra cheap money even though berkshire is full of cash, but more importantly what does it say about the "investors" willing to give berkshire this money.


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## Sarenco (22 Aug 2019)

Hi joe

Do you want a piece of Galway's action?  Let's make this a double bagger!

Happy with the terms of the bet?


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## Andrew365 (22 Aug 2019)

galway_blow_in said:


> I'd wager the U. S is seen as more of a safe haven than Spain, hence further scope to fall in my view



By that opinion then Spain yields should always be larger than the US given it is a riskier country but they arent, why is this?

Because Euro investors can't seamlessly invest US Treasuries due to regulations, company policy, exchange rate risk etc. By investors I'm talking about firms that make up the market rather than retail investors. 

Same thing as why do banks pay the ECB 0.4% to deposit cash instead of going to the US or their local BOI branch, because they have to. 

Yields will potentially drop in the US but they ebb and flow already as we have seen over the last week driven by recession fears (money flowing from Equities to Bonds in the US)


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## joe sod (22 Aug 2019)

@Sarenco, no im not an investor in bonds, whether euro, yen or US treasuries.  My argument is completely different to Galways Im not interested in US treasuries. I pointed out that berkshire are issuing bonds not buying them and they are issuing them in euro and yen, so obviously they see that that money is ridiculously cheap now. It could be that he wants to purchase a big euro company outright. So maybe he kills 2 birds with the one stone , get euro investors to give him euros for nothing to buy a cheap euro company as the euro stock market is so cheap. So that is obviously saying something


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