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This is letter is already a summary, so I will leave it at that.
4 comments:
Anonymous
said...
He's still worried about bonds. I'm not sure that I get this. Perhaps they won't give great returns, but I'm not sure what his scenario is for high interest rates.
He is saying that with the 10 yr yield at about 2% and the 30 yr yield at about 3%, the yield curve is at historic lows. There is duration risk exposure in longer term bonds that increases their volatility. Yields will eventually tend toward the mean and probably overshoot in the process. So bondholders have to be careful they don't get caught when that happens. I don't think he is saying it is going to happen soon, just sooner or later.
"Eventually" could be a really long time. If the economy stays where it is or gets worse, the likelihood of higher rates seems remote. Why must such things revert to any "mean" in any historic context? After a while, the mean for 10 yr. may well be 2%.
Didn't you post something about Soros seriously contemplating deflation (not that I put much stock in things just because they come from famous [rich] people).
Grantham is talking to investors. He is warning them not to just put money in bonds and stick with it. The historically low yields involve higher duration risk. Bonds can move fast when the tide turns. We aren't dealing with just tsys here. Corporates will be more volatile.
4 comments:
He's still worried about bonds. I'm not sure that I get this. Perhaps they won't give great returns, but I'm not sure what his scenario is for high interest rates.
@ abella,
He is saying that with the 10 yr yield at about 2% and the 30 yr yield at about 3%, the yield curve is at historic lows. There is duration risk exposure in longer term bonds that increases their volatility. Yields will eventually tend toward the mean and probably overshoot in the process. So bondholders have to be careful they don't get caught when that happens. I don't think he is saying it is going to happen soon, just sooner or later.
But Tom,
"Eventually" could be a really long time. If the economy stays where it is or gets worse, the likelihood of higher rates seems remote. Why must such things revert to any "mean" in any historic context? After a while, the mean for 10 yr. may well be 2%.
Didn't you post something about Soros seriously contemplating deflation (not that I put much stock in things just because they come from famous [rich] people).
Grantham is talking to investors. He is warning them not to just put money in bonds and stick with it. The historically low yields involve higher duration risk. Bonds can move fast when the tide turns. We aren't dealing with just tsys here. Corporates will be more volatile.
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