So, If You Own Long Term Treasuries Because of the Income That They Provided, You Just Got Punk'd

[Yavin4]

by the Fed today. Yes sir, kiss that nice return you were getting on those long term notes goodbye!

Instead, take your hard earn cash and gamble it in the Wall Street casino. The only casino on the planet that does not serve drinks.

[golfguru]

1. Why are you not recommending

Gold? Are you switching out of gold into stocks?
Gold has come down and should be a good buy at this price?

[Yavin4]

4. PMs Are The Only Play To Make

There is simply no place to secure your wealth over time. Thanks to the Fed, our entire economy has been handed over to the speculators.

[KansDem]

2. Really?

The only casino on the planet that does not serve drinks.

[HereSince1628]

3. Yer wrong. Wall St serves drinks, you just have to be in the break-away

Not only do they serve drinks, they serve high class suppers and...well everything you might want in NYC.

[Name removed]

5. Deleted message

Message removed by moderator. Click here to review the message board rules.

[A HERETIC I AM]

6. So....what happened? Did they reduce the coupon rate?

"Yes sir, kiss that nice return you were getting on those long term notes goodbye!"

How do you figure?

If you are long 10 year or 30 year paper, the coupon rate in effect when you purchased them has not nor will it change.

The income stays the same.

The yield may change for new buyers, but for someone who holds the bonds, the only 'detrimental'* thing that would change is the possible downward movement of the price should they choose to sell.

The "nice return" is still there.

On edit to say, it appears the price of the 30 year was just bid up rather sharply today.

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

Which means, if you own those bonds and bought them ...say...oh.,...yesterday, you just made a few bucks overnight, should you choose to sell.

Edited again to add the *

[ohbill]

7. Yep.

Those higher-yielding bonds are worth MORE.

[Yavin4]

11. Thank You for the Clarification. However, Most Americans Hold Treasuried through Pension Funds

See the article below on how Operation Twist hurts pension funds:

Most private U.S. defined benefit plans, which oversee about $2 trillion, are hurt when long-term yields decline because of the way the plans must value future payouts they will make to retirees in coming decades.

...

Lower rates mean the future benefits have a higher present value, ballooning the defined benefit funds' liabilities. Pension consultants estimate a 1.0 percent drop in rates increases liabilities by 10 percent to 15 percent.

http://www.huffingtonpost.com/2011/09/22/feds-operation-twist-plan_n_975501.html

So, you are correct, and my original post was incorrect. However, the intention of my post was that careful planners and savers are harmed by the Fed's action is correct.

[evilDonkey]

8. As interest rates fall...

As interest rates fall you'll get less interest income but at least the value of your bonds goes up.

However sooner or later interest rates will stop falling. When interest rates rise on a sustained basis look out. The USA has massive private sector and government debt. Combine that with rising interest rates and it could spell Armageddon.

If the USA could no longer afford to borrow at market rates the Fed would print whatever the government wanted and the dollar would go up like a Roman candle.

[A HERETIC I AM]

9. Not true.

"As interest rates fall you'll get less interest income but at least the value of your bonds goes up."

That ONLY applies to Zero Coupon bonds and in that case, it isn't interest which goes down but Yield.

If you own any US Treasury of longer than 1 year maturity, you own a bond that pays a coupon, and that DOES NOT CHANGE from the date you bought the bond.

If you already own the bond, nothing as far as your income will change.

If you buy the bonds in the future, you will get the coupon rate applicable to the specific series which you purchase.

Entirely too many people confuse yield with interest.

They are two distinctly different things.

[evilDonkey]

10. I should have said that

Correct, I didn't say that very clearly.

That only impacts new bonds. Not bonds you already own.