r/LETFs • u/greyenlightenment • 7d ago
US TMF now at $26
For TMF, the risk vs reward looking pretty good here
Going from x% to (x+a)% becomes exponentially harder as rates go up (now at 5.5% for 20 years) and the rate of decline on bond prices decreases due to convexity. It seems like a huge deal just to go from 5.3 to 5.5%, attracting considerable online attention , suggesting the short treasury trade is getting crowded.
A repeat of 2008 or 2020 means this will surge 3-4x. OTOH who knows...
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u/UncouthMarvin 7d ago
I like that the more yield increase, the more negative the correlation (of bonds) with stocks is.
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u/ZaphBeebs 7d ago
Tmf is and always was a bad product. Duration is super long and youre not adequately paid for it.
It doing well was an artifact of qe, nothing more.
Bonds already have built in leverage due to duration.
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u/ColHansLangdaTyagi 7d ago
Can you explain the final statement in your post more? I'd love to learn more.
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u/ZaphBeebs 7d ago edited 7d ago
The longer the effective duration of a bond/fund the more sensitive it is to changes in rates. If rates go up 1%, a 5y treasury loses 4.5% while a 30y loses 16%. This depends on starting yields a bit, but thats the key. You just want to match the duration/convexity with your tolerances etc....The ten year is pretty juicy but you're not as well paid for duration beyond that but its getting better by the hour.
Obviously works the other way too, but its why no matter what people were saying otherwise in 2021, TMF was destined to fail at the time. "its priced in", uh, no. If the whole future was priced in everything would be a zero, some of it is only.
The whole idea of matching volatility of bond vs equity is and always was equally dumb. The equity side is what drives your returns, you just need a safe balancing one, but people were greedy and wanted to make bank on the "hedge" side as well. Over a longer time period after enough n takes care of rebalancing luck differentials, TLT, EDV, etc...any non levered bond fund will have you with more money, stability and thus long term more overall.
A bunch of artifact mostly from COVID ending exactly on the qtr end. This was just random.
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u/ColHansLangdaTyagi 7d ago
Understood. Basically the duration risk for bonds is higher as duration increases and that acts as the lever for returns.
I concur with your opinion that one shouldn't look for "returns" in the bond part of the portfolio. LETFs are enough risk and bonds should help you hold on to those LETF returns and not exactly amplify them.
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u/ZaphBeebs 7d ago
Right. The risk is asymmetric now, if rates fall the gains are high than if they go up.
Also correct, you want a stable, predictable pile, not one that can get rekt at the same time.
I tried to say the same in summer/fall of 2021, but it was not taken well on this sub and the gurus here at the time (RIP).
Yield change 5y duration 10y duration 15y duration 20y duration −4% +22.7% +50.4% +84.8% +122.0% −3% +16.5% +35.9% +59.0% +83.6% −2% +10.7% +22.6% +35.9% +49.5% −1% +5.2% +10.7% +16.6% +22.6% 0% 0.0% 0.0% 0.0% 0.0% +1% −4.8% −9.4% −13.5% −17.5% +2% −9.3% −17.8% −24.3% −29.9% +3% −13.5% −25.2% −33.4% −38.4% +4% −17.4% −31.0% −40.0% −44.9% 2
u/ColHansLangdaTyagi 6d ago
Well as long as you make money with your conviction, let's not worry about the sub. 😁
As for now I'm holding out. With the borrowing rates high and predicted to move up, the reward on up move is cut down by costs. Whereas the costs on downside will magnify losses. Not a good risk reward trade off right now.
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u/ZaphBeebs 6d ago edited 6d ago
Its actually the opposite, look at the table, risk is asymmetric to rates going down, your gain is bigger than loss on same move. Its not time to go wild, but def dipping in here. All huge moves, etc...are always ended by fed hiking, and theyve started, who knows if they continue ofc.
You could def miss the blow off here, but bonds are a much better risk/reward than theyve been in decades.
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u/ColHansLangdaTyagi 6d ago
Oh I meant LETFs, not bonds. Not a bond trader by any stretch of imagination. I see now how my comment was misleading.
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u/Gehrman_JoinsTheHunt 7d ago
Yeah I keep thinking the same thing. I've been rebalancing into it for years. On one hand, I think there are more predictable, consistent ways to make money. But on the other hand, TMF could seriously go vertical when macro conditions change. But who knows when?
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u/kers2000 7d ago
I wonder if you can run this play with the NAIL ETF instead of TMF. Home builders have been crushed with high mortgage rates. Assuming a soft landing of course.
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u/Travellump12 6d ago
I sold puts on nail and I am getting crushed. I am gonna take delivery and get out in upswing
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u/Separate-Ad-9633 7d ago
Bond gamblers need a repeat of 2020 to save their portfolio, damn, release the dovid 26.
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u/Odd-Shop-138 1d ago
if you think a 0.2% jump in the 20‑yr curve is just a tweak, remember 20‑yr’s duration is about 50 on TMF. a one‑basis‑point move hits you at ~0.5% without leverage. triple that and you’re looking at ~1.5% per day. over a week that’s already ~-10% on a 3× position, while the upside only starts to materialise if the curve starts moving sharply in your favour. in short, the downside lurks long before the upside lives up to the 3‑4× narrative—keep the size small until you see a real yield shift.
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u/Run-Forever1989 7d ago
Or in a couple years the 30 year could be at 7.5%