vineviz wrote: ↑Wed Apr 14, 2021 5:14 pm
Patzer wrote: ↑Wed Apr 14, 2021 4:44 pm
Pretending the rates will stay what they are right now seems completely wrong based on any historical data.
There's no "pretending" going on: the best estimate of future bond returns is the starting yield. Total returns from bonds are as likely to be lower than that starting yield as to be higher.
Patzer wrote: ↑Wed Apr 14, 2021 4:44 pm
Why would I lock in low rates with long-term bonds?
Because unless you have a crystal ball or a time machine, there's no way to know whether today's rates are "low" or "high". If it wasn't obvious in March of 2000 that "locking in" a 6.4%. yield on 20-year Treasuries was a
great deal, why is it so obvious today that locking in 2.3% on 20-year Treasuries is a bad deal?
Do you really not see the difference between a bond yield that can fall 6.4% and a bond yield that can fall 2.3% before hitting zero?
Bonds aren't going below 0 for any extended period of time and if they do, then I won't be holding bonds, so it doesn't matter.
I don't think the bond market is efficient. Last year in March, I could get 1% for cash, 1% for a 2 year CD, or .39% for a 5 year treasury. So, I could get 2% returns in 2 years with a CD or 2% returns in 5 years with a Treasury and have the option to reinvest after 2 years at a potentially higher rate.
If the bond market is efficient, than wouldn't it be safe to assume that long-term bond buyers are pricing in inflation to be lower than the total return of the bonds they are buying, or why would they invest for the long-term in those asset classes? It's one thing to move into an asset class in a panic, i.e. when 30 year bonds fell to .99% on March 9th, 2020, but we aren't talking about that.
I am talking about 30 year bonds trading in a 2.3-2.4% range consistently for the last month. If the market is efficient, and that rate is not likely go up, than it must mean the efficient market thinks that inflation will be below the current 30 year bond rate, or the rate would be rising.
If the market thinks inflation will be below that rate, then bonds do not and will not yield the -1% Real that you said they do.
If bonds do yield -1% real for a significant portion of the time like you suggested, then less people will be interested in bonds, and bond yields will rise to efficiently correct for the asset yielding a negative real amount, right?
So, the statement that people should calculate their SWR with an assumption of a -1% return for bonds seems off to me.