Our Q&As are emailed in our Saturday Morning Report, find the answer to this question below.
Dear MM Team Am I correct in assuming that if one were to buy long dated Government treasury bonds while the yields are high you will benefit from locking in a reasonable yield and that there will be a good chance, if you are correct about bond yields coming off, that there will be a capital gain too? I’m hoping you can tell me where to get information about what bonds are on offer and how to go about buying them. Thanks in anticipation Peter
Hi Peter,
You are basically correct, if you purchase a long dated bond today it will be yielding significantly higher than say 2-years ago, e.g. The Australian 10-year Futures have seen yields increase from 1% to almost 5% in just over 2-years. Theoretically if you bought bonds today that were yielding say 5% and rates then fell to 3% over say 2-years you would have enjoyed a 5% yield for the two years plus the position should have increased in value although it would only then be set to be 5% over 8 more years hence its not a simple science.
The BetaShares AGVT ETF is a great way to “play” this view, it paid a yield of 3.4% over the last 12-months and if/when we see bond yields retrace, its price should rally accordingly, i.e. since yields on the 10s have increased from 1% the AGVT has fallen ~25% in actual price.
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