VBIN,
I'm sure you understand the basics of bonds. But you asked about TLT so let's discuss it. Movement in the price of a bond is the inverse of the yield. Pretty much stock price/div yield in reverse. Back in the day when safe bonds yielded 5 or 8%. it wasn't too significant if the daily interest rate moved 0.10%. Now it does and TLT action today illustrates it well. TLT is an ETF and they hold many thousands of individual bonds of course, with news bonds replacing bonds at maturity date. (they can trade them early but not important now)
Just today the 10YR treasury rate rose .13%. That is a 9.29% increase in yield in one day. That's a big daily move. The stock market didn't like it because it's been a trend.
Yesterday a share of TLT was $140.83.
Today T rates rose .13%, and yield is now 1.63% annual. It will gradually rise to prevailing yield. TLT share price dropped $2.30 to $138.63 because they hold bonds that don't yield todays higher rate.
So if you bought yesterday and rates freeze now (which they won't) Your yield while you hold it will rise to about 1.63% shortly to match current market rate. It's an index, it may take a few days or week to match perfectly as they flip bonds. The $2.30 TLT share price drop happens to be 1.63%. That's a coincidence it matched this exactly.
Bottomline is had you bought TLT yesterday you are instantly down the entire annual interest payout in only 24 HRS. I don't like that risk/reward AT ALL when the whole world expects rates to rise for awhile. Pull up a TLT chart. Had you bought just a couple months ago you would literally be down the equivalent of 5 years of bond dividends. You know you are going to dump that for a loss to free up capital. Selling puts won't save you from a constant grind up in rates. It works in reverse as well of course. All last year I was selling TLT puts and never got exercised. I and everyone else thought rates would not go up during a pandemic with an attentive FED. We were right. It was low $160s just last fall. That's a damn big drop if you held.
On a side note TLT can be a nice hedge. Recession comes, FED drops rates and TLT share prices rises while our stocks are getting hammered. Your yield will gradually drop but you were already paid for holding at the right time while rates were higher. It won't work nearly as well down here. 5%+ bond yields was a whole different game because they could drop rates 1% a quarter if they wanted too. Doesn't work now because we will be at zero quick. Don't ask me about negative interest rates. I've never lived it and don't want to pretend to know the crazy twists that could bring.
Going long any bonds other than ultra short term is damned risky while rates are rising. I just don't want to be in the hopeless position of being down 10% with a miniscule yield. Some wealthy folk that aren't informed won't be pleased when they see their next statement if this continues. This kind of stuff makes MO and T look real good. Might as well get 7% yield if you are going to risk a 10% loss of capital anyway.
Hope this was helpful.
I'm sure you understand the basics of bonds. But you asked about TLT so let's discuss it. Movement in the price of a bond is the inverse of the yield. Pretty much stock price/div yield in reverse. Back in the day when safe bonds yielded 5 or 8%. it wasn't too significant if the daily interest rate moved 0.10%. Now it does and TLT action today illustrates it well. TLT is an ETF and they hold many thousands of individual bonds of course, with news bonds replacing bonds at maturity date. (they can trade them early but not important now)
Just today the 10YR treasury rate rose .13%. That is a 9.29% increase in yield in one day. That's a big daily move. The stock market didn't like it because it's been a trend.
Yesterday a share of TLT was $140.83.
Today T rates rose .13%, and yield is now 1.63% annual. It will gradually rise to prevailing yield. TLT share price dropped $2.30 to $138.63 because they hold bonds that don't yield todays higher rate.
So if you bought yesterday and rates freeze now (which they won't) Your yield while you hold it will rise to about 1.63% shortly to match current market rate. It's an index, it may take a few days or week to match perfectly as they flip bonds. The $2.30 TLT share price drop happens to be 1.63%. That's a coincidence it matched this exactly.
Bottomline is had you bought TLT yesterday you are instantly down the entire annual interest payout in only 24 HRS. I don't like that risk/reward AT ALL when the whole world expects rates to rise for awhile. Pull up a TLT chart. Had you bought just a couple months ago you would literally be down the equivalent of 5 years of bond dividends. You know you are going to dump that for a loss to free up capital. Selling puts won't save you from a constant grind up in rates. It works in reverse as well of course. All last year I was selling TLT puts and never got exercised. I and everyone else thought rates would not go up during a pandemic with an attentive FED. We were right. It was low $160s just last fall. That's a damn big drop if you held.
On a side note TLT can be a nice hedge. Recession comes, FED drops rates and TLT share prices rises while our stocks are getting hammered. Your yield will gradually drop but you were already paid for holding at the right time while rates were higher. It won't work nearly as well down here. 5%+ bond yields was a whole different game because they could drop rates 1% a quarter if they wanted too. Doesn't work now because we will be at zero quick. Don't ask me about negative interest rates. I've never lived it and don't want to pretend to know the crazy twists that could bring.
Going long any bonds other than ultra short term is damned risky while rates are rising. I just don't want to be in the hopeless position of being down 10% with a miniscule yield. Some wealthy folk that aren't informed won't be pleased when they see their next statement if this continues. This kind of stuff makes MO and T look real good. Might as well get 7% yield if you are going to risk a 10% loss of capital anyway.
Hope this was helpful.