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30-year U.S. bond yields less than S&P dividend rate

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Re: 30-year U.S. bond yields less than S&P dividend rate

#81

Post by smabie »

Ididntdothis wrote: post #67
smabie wrote: post #62

Earlier quoted context omitted.

Why would you ever want to pay off your mortgage? Mortgages are the best and cheapest way to get debt. Considering the rate environment, the rate risk isn’t a big deal, IMO. Hell, I would even go a step further: dump that 200k into a levered S&P 500 (2x should be good). Unless the world falls apart, you’ll definitely be a millionaire in 10 years. And if you do 3x, maybe even 5 years (that’s some more risk though). I…

"I can’t really imagine a world in which the annualized yield of SPY over 10 years is less than 2.7%." Seems your imagination is lacking. From 2000 to 2010 it was negative. I wonder if the current market is the only market you ever have seen. Housing prices also have collapsed not too long ago in the past.

You’re time period is very convenient, including two crashes and none of the recovery. That said, point taken.

Re: 30-year U.S. bond yields less than S&P dividend rate

#82

Post by ethbro »

H8crilA wrote: post #65
bluetwo wrote: post #55

Earlier quoted context omitted.

But if you did want to buy bonds, any citizen can setup an account at: https://treasurydirect.gov Also you can buy iBonds and TIPS, which are protected against inflation.

Any good brokerage allows for trading bonds. Interactive Brokers does. The bond market is far larger than the stock market. If you wanna know "what's going on" better become familiar with at least the basics of it (interest rates, how they relate to bond prices, spreads for risky credit, floating rate vs fixed rate, inflation protected securities, carry trades). And it's not true that most bonds are held via ETFs (ex…

Is it fair to say that one reason the bond market is so large is because of capacity and simplicity?

The impression I get is that when you start talking in terms of $x0M+ US regular investment (e.g. on Monday, then again on Tuesday) stocks become a less viable option (due to liquidity and risk of orders moving the market).

Bonds also seem more simplified and standardized, in that there are fewer weird / unmodelable features in a given bond issue.

Re: 30-year U.S. bond yields less than S&P dividend rate

#83

Post by flyGuyOnTheSly »

christocracy wrote: post #52
flyGuyOnTheSly wrote: post #25

Earlier quoted context omitted.

Just pay off your mortgage and focus on things that you do understand well. It would not be prudent to invest the majority of your wealth into a recently broken bull market trend and try to catch the falling knife so to speak. The markets could recover in 10 years, or they could bleed out for another 10 years. If you actually had any inkling of which way the markets would move... you'd be retired already.

It doesn’t make sense to pay off the mortgage when money is essentially free, where interest rate is lower than inflation. I believe it does make sense to invest what you can now in a balanced and diversified 60/40 portfolio. The current market turmoil is mere noise in the long term. The fundamentals are still solid. Companies continue to make profits and hire people.

>The current market turmoil is mere noise in the long term.

Which is exactly my point.

Interest rates could skyrocket to 20% or more for yet another unknown unknown financial black swan event.

Or your home could be worth 25% of what it is today before you know it.

The ground could literally open up beneath your house and swallow it hole, leaving you with nothing but that massive debt obligation. (As most home insurance plans do not cover acts of god like sink holes).

That's an insanely rare and extreme example, but I hope you get my point.

It's best to get out while the getting-out is good.

If you have a large debt obligation that your current home value can pay off right now and then some, get rid of that debt and create some real wealth.

You've officially won the game of middle-class life at that point.

Then you can dream about what to do with that wealth until the cows come home... once you're actually wealthy and have the time and money to theorize how to properly invest that wealth.

Re: 30-year U.S. bond yields less than S&P dividend rate

#84

Post by hylaride »

outside1234 wrote: post #72

I'm not sure why this headline is news. Bond yields should be less than S&P dividend rates because with a bond, there is a much higher likelihood of getting your principal back (debt is senior to capital) that isn't there with underlying stocks of the S&P. Also, the underlying stocks of the S&P can cut their dividends to 0 tomorrow without warning, so you need to price this risk in.

> Bond yields should be less than S&P dividend rates

No. Stocks don’t necessarily pay out any dividends at all, like google or amazon. Stocks can also give substantial capital gains. Bonds have historically had higher yields than the dividend yield of the S&P to entice people to purchase them to compete with this fact.

While they have a higher chance of getting your principal back they also have to compete with other assets for the money. This is why bond yields typically go up during “good” times as people feel the stock market is a better place, but the yields then go down (for “safer” bonds at least, like the federal government or high rated corporations) as people flock to safety and the demand means they can pay out less.

This is news because it’s another indication that people are flocking to “safety” causing both the bond yields to go down due to demand, and the stock yields to go up as their prices fall.

Re: 30-year U.S. bond yields less than S&P dividend rate

#85

Post by ethbro »

justinzollars wrote: post #31
brenden2 wrote: post #23

It's worth noting that most people nowadays don't buy bonds directly, you would normally hold them through an ETF/index fund like BND or TLT. Yields typically drop when there's a flight to quality (i.e., people selling stocks to buy bonds). The upward pressure on bond prices drives yields down because people are willing to pay more for lower yields. Bonds are almost like a future of expected return on capital. If bon…

> Bonds and stocks have been fairly non-correlated over recent years, but this hasn't always been so. It's great for modern portfolio theory (i.e., holding a portion of stocks and bonds and rebalancing periodically). There's no guarantee that it will stay this way. This is true. This correlation has held for 30 years so we are conditioned into believing this is a sure trade - but it is not.

Ultimately, correlation in free markets is just frequency of similar participant behavior, no?

So if everyone is using robo advisor allocation, and the allocation algorithms all feature a similar bond shift, then that becomes the correlation?

Re: 30-year U.S. bond yields less than S&P dividend rate

#86

Post by kenneth »

nabla9 wrote: post #69
brenden2 wrote: post #23

It's worth noting that most people nowadays don't buy bonds directly, you would normally hold them through an ETF/index fund like BND or TLT. Yields typically drop when there's a flight to quality (i.e., people selling stocks to buy bonds). The upward pressure on bond prices drives yields down because people are willing to pay more for lower yields. Bonds are almost like a future of expected return on capital. If bon…

I agree with all you said. I think US government is potentially the source for systemic risk that is realized within year or two. Regulation and oversight is cut dramatically, SEC has been castrated, white-collar crime investigations are cut in DOJ. In addition the administration does everything it can to keep markets going up until the elections. The change that large scale financial frauds and systemic risks can gr…

The systemic risk is the global pandemic of proportions not seen since the Spanish flu or the black death.

It's not about whether the DOJ is going after hedge fund managers. Viruses don't care about income inequality.

Re: 30-year U.S. bond yields less than S&P dividend rate

#87

Post by bulletsvshumans »

tryptophan wrote: post #12

The dividend yield doesn't matter (alone). The more common way to return cash to shareholder's is via buybacks. The actual 'yield' of the market should thus be calculated as div yield + buyback yield, giving the investor yield, which is what intellectually honest people should compare to treasury yields.

Buybacks directly cause dividend yields to go up because they reduce the number of outstanding shares, causing the remaining shareholders to receive a greater stake when future profits are distributed amongst fewer parties.

Re: 30-year U.S. bond yields less than S&P dividend rate

#88

Post by vikramkr »

Der_Einzige wrote: post #78
brenden2 wrote: post #23

It's worth noting that most people nowadays don't buy bonds directly, you would normally hold them through an ETF/index fund like BND or TLT. Yields typically drop when there's a flight to quality (i.e., people selling stocks to buy bonds). The upward pressure on bond prices drives yields down because people are willing to pay more for lower yields. Bonds are almost like a future of expected return on capital. If bon…

Lmao the current market panic is not short term and is absolutely systemic. Supply chains have ground to a halt . Actually, it's easy to "time the market"... Just buy puts when everyone is panicking.

I'd hate to have had puts expiring on that day the markets rallied a couple days ago. Volatility goes both ways.

Re: 30-year U.S. bond yields less than S&P dividend rate

#89

Post by vikramkr »

robjan wrote: post #21
mkagenius wrote: post #2

Idk if this belongs at HN but if it does, then isn't this the greatest opportunity post 2008 crash to invest in to the markets?

It's best to avoid timing the market. It could do up x% on Monday or down y%. The people driving the real volume know way more than you or I.

The performance of actively managed hedge funds would disagree with that. Doesn't seem like anyone can manage it consistently

https://www.cnbc.com/2019/03/15/active-fund-managers-trail-t...

Re: 30-year U.S. bond yields less than S&P dividend rate

#90

Post by graeme »

mabbo wrote: post #16
mkagenius wrote: post #2

Idk if this belongs at HN but if it does, then isn't this the greatest opportunity post 2008 crash to invest in to the markets?

I'm in an interesting position related to this. In Canada, most people lock into their mortgage rate for 3-5 years. After that, you've got to renegotiate a rate but you're also free to switch banks. It's like starting over again at whatever you currently owe. I locked into mine 4 and a half years ago, so renewal is coming up this summer. Meanwhile, my home's value has skyrocketed (thanks to an insane Toronto housing…

You might consider the Japanese experience. In the 1980s they had an asset price bubble fueled by loose monetary policy.

The Nikkei never recovered from its peak.

Is that probable? Perhaps not. Is it possible? Definitely. We have had an asset price bubble and loose monetary policy.

Investing on margin is a mug’s game. You can’t realistically know when the bottom of a market is. Also, if an asset price bubble does pop, your home will likely go down a lot in value too.

https://en.wikipedia.org/wiki/Lost_Decade_(Japan)#/media/Fil...

Also: in the great depression stocks fell for 3-4 years. They didn’t recover until after world war II.

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