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Starting Yields Are Predictive of Bond TR...

...but starting fwd P/E not so for stocks. Twitter LINK

This is a good illustration of the well-known bond Rule of Thumb that initial yields approximate the TR over the duration (AGG duration 6).

Shown https://pbs.twimg.com/media/GRkhkOuXsAAkAPh?format=jpg&name=large
Not shown https://pbs.twimg.com/media/GRkhoOlXkAEzkLm?format=jpg&name=small

image

Comments

  • Sorry, I'm not one who can make sense of such a chart. "Starting yields are predictive." For BONDS, not stocks. OK. Is that true in relative terms? Absolute terms? What if yields are at rock-bottom at the fund's inception?
  • edited July 4
    Some explanations for the chart:

    There is 50-yr worth of data color coded for 5 decades.

    The solid line is the best-fit line. So, it says, for example, that if the initial yield was 5% (read on the horizontal axis), the approximate TR in 5-year forwards could be expected to be 5.2% (read on the vertical axis); the range of TR was 4.2-6.0% and the period was 2000s.

    But there is scatter around the solid line with large scatterings (notable undershots) in 1970s (an era of very high yields) and 2010s (an era of very low yields). But much of the scattering is in a narrow band.

    R^2 of 88% or 0.88 means r of 0.94. So, this linear regression should be considered good for these data points.

    Possible criticisms:

    1. The US Agg Bond Index has had variable duration that were different from the 5-year forward period used for the study.

    2. Such linear regressions may work better for intermediate-term Treasuries, but the US Agg Bond Index is less than half in government bonds (Treasuries, Agencies) with the rest in corporate and securitized bonds.

  • Thanks, yogi.
  • Today's 10 yr rate is 6-7 bps lower than before the last presidential debate which was blamed for the past week's rise in yields.

    what is the reason for the big move down in the 10 yr rate today?
  • edited July 5
    So, I guess short term economic reports overwhelm even the 10 yr relative to longer term political winds.

    Over in the UK, overnight, the Labor party had a land slide victory, doubling their seats in the parliament, while the Tories (conservatives) lost more than 2/3rd of the seats they held prior to the election. Tories were not extremists but their governance has been chaotic.

    Yeah. I have seen a bunch of credible business-economists express concern about softening economic conditions and staying on tight monetary policy for too long. Sept rate cut is getting traction.

    May be time to take the available (starting) yields!
  • Maybe people are connecting the jobs report to Powell's recent comments that have been interpreted as dovish. It has also been a while since the GOP candidate for president mentioned the Fed, tariffs, or tax cuts.
  • WABAC said:
    Next week, rates may go up, and the explanation will not look great. These articles explaining stuff can be generated by AI. Over the years, I have seen a reversal in explanations based on the new markets. I stopped listening to these articles many years ago.
    This is why I follow prices, charts, and trends that tell me in real time a lot more.

    Read (this).

  • edited July 5
    "Maybe people are connecting the jobs report to Powell's recent comments that have been interpreted as dovish."

    Dovish may be for rates but not for equities where the action really stunk. Lower rates across the curve and mid, small, and micro equities crapped out, when they are supposed to be the biggest beneficiaries of lower rates. Until a few months ago, these groups used to react positively to lower rates. May be we are on to a different state of affairs.
  • "Dovish may be for rates but not for equities where the action really stunk."

    mmm....the SP500, the most known index in the world, looks pretty good to me, at making "only" 17+% YTD...(https://schrts.co/KgUBfiaZ)
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