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When Bottoms Fail, Markets Crash 5/12/21

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15 minutes ago, DrStool said:

If they invested the million when the 10 year was at 0.5, it would now be worth $780,000. 

 

By the time the bond market crash is complete, they'll lose half their capital. At least. But if they hold for 10 years, they get it back. The question is how much purchasing power it will have. 

funny , i just realized we came up with the same #,..because 1 mil -780k = 220k loss....divide that by 5 ( the number of .25% increases)  so one .25% increase equals 220K divided by 5 and that is ....TA...DAAA...$44000  my back of the envelope calc....

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Yields are going way, way up. 

SInce the 10 year has gone from 0.5 to 1.7, the TLT has lost 22%. 

1 hour ago, No Einstein said:

to any Bond guru out there.

my Daughter and hubby will close on the sale of their business shortly...she mentioned putting a portion ( say 1 million) into 10 yr Treasuries....and i said stop...no way...but i am ignorant as to a concrete example of what a .25% increase would do to a position of that size... what would be the capital loss....

 

Look here:

https://www.bloomberg.com/markets/rates-bonds/government-bonds/us

I see the 10-year quoted at a price of $95, with a coupon of $1.13 and priced to yield 1.68%.

A financial calculator has five buttons, N, I/Y, PV, PMT, FV

I plug in the following

N = 39 (4 quarters X 10 years minus 1 for a quarterly coupon already paid)

PV = -95.00 (minus, because you are purchasing)

FV = $100 (10-years are sold par)

PMT = $1.13/4 = $0.2825 (because paid quarterly.

Then, I compute I/Y = 0.4218%... however, we need to multiply that by 4 (quarters) = 1.68%... which is the value found as yield above.

Math checks out (if you use N = 40 instead, you get 1.674%... close enough).

Now, you can entertain different impacts on price by assuming a different I/Y rate.

So, let's say that the 10-year reprices to yield 2.00%, the target on Doc's 10-year chart.

N = 39 

FV = $100 

PMT = $1.13/4 = $0.2825

I/Y = 2.00%/4 = 0.5%

PV = -$92.13, or a loss of 2.86

Assuming the $1m initial investment at $95 = ~10,526 bonds, your marked to market value would be 

10,526 bonds X $93.13 = $980,315.... or a loss of about $20,000 (assuming not held to maturity).

 

Let's say the 10-year climbs to 2.5% (these changes are assumed to happen very quickly... because over time, N changes as quarterly coupons are paid)

N = 39 

FV = $100 

PMT = $1.13/4 = $0.2825

I/Y = 2.50%/4 = 0.625%

PV = -$87.91

10,526 bonds X $87.91 = $925.356.... or a loss of about $75,000 (assuming not held to maturity).

Hope that helps. 

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15 minutes ago, Jimi said:

Look here:

https://www.bloomberg.com/markets/rates-bonds/government-bonds/us

I see the 10-year quoted at a price of $95, with a coupon of $1.13 and priced to yield 1.68%.

A financial calculator has five buttons, N, I/Y, PV, PMT, FV

I plug in the following

N = 39 (4 quarters X 10 years minus 1 for a quarterly coupon already paid)

PV = -95.00 (minus, because you are purchasing)

FV = $100 (10-years are sold par)

PMT = $1.13/4 = $.02825 (because paid quarterly.

Then, I compute I/Y = 0.4218%... however, we need to multiply that by 4 (quarters) = 1.68%... which is the value found as yield above.

Math checks out (if you use N = 40 instead, you get 1.674%... close enough).

Now, you can entertain different impacts on price by assuming a different I/Y rate.

So, let's say that the 10-year reprices to yield 2.00%, the target on Doc's 10-year chart.

N = 39 

FV = $100 

PMT = $1.13/4 = $.02825

I/Y = 2.00%/4 = 0.5%

PV = -$92.13, or a loss of 2.86

Assuming the $1m initial investment at $95 = ~10,526 bonds, your marked to market value would be 

10,526 bonds X $93.13 = $980,315.... or a loss of about $20,000 (assuming not held to maturity).

 

Let's say the 10-year climbs to 2.5% (these changes are assumed to happen very quickly... because over time, N changes as quarterly coupons are paid)

N = 39 

FV = $100 

PMT = $1.13/4 = $.02825

I/Y = 2.50%/4 = 0.625%

PV = -$87.91

10,526 bonds X $87.91 = $925.356.... or a loss of about $75,000 (assuming not held to maturity).

Hope that helps. 

perfect...thanks !!

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37 minutes ago, Jimi said:

 

So, let's say that the 10-year reprices to yield 2.00%, the target on Doc's 10-year chart.

N = 39 

FV = $100 

PMT = $1.13/4 = $0.2825

I/Y = 2.00%/4 = 0.5%

PV = -$92.13, or a loss of 2.86

Assuming the $1m initial investment at $95 = ~10,526 bonds, your marked to market value would be 

10,526 bonds X $93.13 = $980,315.... or a loss of about $20,000 (assuming not held to maturity).

Oops. 
Erred there. 
Should be 10,526 X $92.13 = $969,760. 

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5 day and 2-3 day cycle projections both point to 4055. 

And if you look hard, there's a severely downsloped head and shoulders that measures to 3875. 

tvc_c0a509aa6e337b7f385eaacc4d5db53d.png

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3 minutes ago, DrStool said:

5 day and 2-3 day cycle projections both point to 4055. 

And if you look hard, there's a severely downsloped head and shoulders that measures to 3875. 

tvc_c0a509aa6e337b7f385eaacc4d5db53d.png

gotta say those red channels looks like a "fork in the road" pattern.

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7 minutes ago, DrStool said:

I just finished my tax return. woohoo.

Do you owe $460bn?  That will take care of the Treasury this quarter.

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