why are u.s treasuries so cheap

galway_blow_in

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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
 

galway_blow_in

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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
 

Sarenco

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...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

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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.
 

galway_blow_in

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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
 

Sarenco

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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.
 

galway_blow_in

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

Sarenco

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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?:cool:
 

joe sod

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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.
 

Sarenco

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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?
 

Andrew365

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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)
 

joe sod

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@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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