Now the US 10-year treasury stood at the 4% level, the 20-year one at 4.36%, and the 30-year one at 4.203%, I would like to take a look at their historical charts to see if now is a possible buying point.
The US 5-year treasury yields
The US 10-year treasury yields
The US 30-year treasury yields
How much do bond prices drop according to their durations
Assuming the US 5-, 10-, and 30-year treasury yields are all 4%, the followings are how much their prices decrease when yields increase by 0.5%, 1%, 2%, and 3% respectively. And assume they pay coupons every 6 months with coupon rates of 4.13%, 3.38%, and 3.63 % respectively.
Yield rises 0.5%
- The US 5-year treasury price drops 2.21%。
- The US 10-year treasury price drops -4.02%。
- The US 30-year treasury price drops -8.35%。
Yield rises 1%
- The US 5-year treasury price drops -4.37%。
- The US 10-year treasury price drops -7.96%。
- The US 30-year treasury price drops -15.75%。
Yield rises 2%
- The US 5-year treasury price drops -8.51%。
- The US 10-year treasury price drops -15.19%。
- The US 30-year treasury price drops -28.18%。
Yield rises 3%
- The US 5-year treasury price drops -12.45%。
- The US 10-year treasury price drops -21.76%。
- The US 30-year treasury price drops -38.05%。
The possibility of the yield increased by 1%？
Many articles are mentioning that the Fed may stop raising rates or even start lowering rates. But if it takes longer than expected to lower rates and the inverted yield curve turns into normal, the mid to long-duration bonds' yield would have to increase. With the US 1-year yield to be 5.33%, just for the longer counterpart to reach the same level, they all have to increase by at least 1%.
If that's the case, for a US 30-year treasury position, it is a 15% loss.
If it does 3%, it is a 38% loss.
Compare this to the chance of getting either a 15% loss or a 38% loss of SPY, it is hard to ignore the risk of such a loss in investing in US mid to long-term treasury bonds.
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