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Rekenthaler Report

Long Bonds Are for Fools

The investment hope is to sell them to greater fools.

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Would you exchange $100,000 for a promise to receive $143,371 in April 2050? The question is rhetorical: Your answer is “No.” No matter how reputable the counterparty, 30 years is a very long time to wait, and a 43% cumulative gain is a meager return for your very large expenditure of patience.

Such is the deal presented by 30-year Treasury bonds, which yielded 1.18% at the time of writing. If one were required to hold such bonds until their maturity dates, the Treasury Department’s offer would be firmly rejected. Few, if any, would accept a nominal return of slightly more than 1% in exchange for accepting the risk that inflation would not be entirely dormant throughout the next 30 years.

John Rekenthaler does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.