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US 10 Year Treasury purchase?

Gilts, bonds, and interest-bearing shares
seekingbalance
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US 10 Year Treasury purchase?

#178274

Postby seekingbalance » November 5th, 2018, 3:53 pm

I am thinking about upping my bond (type) exposure which is currently limited to some Vanguard UK Gov ETF shares, and various PIBS and prefs.

At around 3.2% I was thinking of getting some US Treasury 10 Year bonds into my SIPP or ISA, as I am sitting on quite a big cash pile at the moment but don't want to go all-in on equities pre-Brexit.

I am a long term buy and hold investor in the main, and would be looking to hold to maturity, unless clearly sensible to sell early.

That was not my question, though.

My question is does anyone know what the ISIN or SEDOL number of a suitable 10 Year Treasury is, so I can instruct the rather unhelpful people at You Invest what to buy. They are sure I can buy, but they need the code and won't or can't advise.

A second question - is it best from a US withholding point of view to put them in my SIPP rather than ISA, or does it not matter?

everhopeful
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Re: US 10 Year Treasury purchase?

#178278

Postby everhopeful » November 5th, 2018, 4:05 pm

Why not get exposure to these via an ETF such as Ishares 7-10 year Treasury Bond ETF (IBTM)?

argoal
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Re: US 10 Year Treasury purchase?

#178286

Postby argoal » November 5th, 2018, 4:28 pm

everhopeful wrote:Why not get exposure to these via an ETF such as Ishares 7-10 year Treasury Bond ETF (IBTM)?


Interestingly I am in the process of doing just this - selling a decent slug of corporate bonds (SLXX) in order to replace them with a Treasury Bond ETF.

I'm still deciding on the appropriate duration but will probably just by the whole lot (VUTY) with an average duration of just 6 years which is much lower than the equivalent UK government bond fund at 12.7 years.

I'm not losing much in terms of yield and gaining a great deal in terms of risk and a little bit in cost.

langley59
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Re: US 10 Year Treasury purchase?

#178312

Postby langley59 » November 5th, 2018, 6:54 pm

The trouble with a bond ETF is you don't know what your return is going to be as an ETF doesn't have a yield to maturity. If you buy a bond and hold it to maturity you do know what your return will be (subject to FX rates in this case).

Alaric
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Re: US 10 Year Treasury purchase?

#178331

Postby Alaric » November 5th, 2018, 9:08 pm

seekingbalance wrote:A second question - is it best from a US withholding point of view to put them in my SIPP rather than ISA, or does it not matter?


If there's a withholding tax, you would be unable to get a better deal (from foreign governments) out of an ISA holding than owning it directly. SIPPs on the other hand are internationally recognised as part of the usual tax concessions applied to pensions, so it should be reclaimable or not levied in the first place, provided the Broker has structured their nominee accounts to segregate pension business.

seekingbalance
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Re: US 10 Year Treasury purchase?

#178467

Postby seekingbalance » November 6th, 2018, 11:20 am

Everhopeful - all ETFs I have looked at have lower yields, and more to the point, as Langley59 says, there is no term, so no redemption date, so no guarantee of return at the end of the 10 years. I already have ETFs, I now want a directly held fixed term bond.

Alaric, thanks - just as I thought. SIPP it is then.

Still no answer on a suitable ISIN or SEDOL - anyone?

langley59
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Re: US 10 Year Treasury purchase?

#178541

Postby langley59 » November 6th, 2018, 2:38 pm

Regarding ISINs you could search on the MarketsInsider bond finder page typing 'United States of America' into the name box. This will return 117 bonds but if you scroll through the results you can see the yields and maturities of the various US Treasuries and by clicking on an individual bond you can see all details including the ISIN.

https://markets.businessinsider.com/bonds

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Re: US 10 Year Treasury purchase?

#178560

Postby hiriskpaul » November 6th, 2018, 3:48 pm

Provided you fill in a W8BEN, you will not pay withholding tax on US Treasuries, or most US corporate bonds either. That also applies outside SIPPS.

None of the brokers I currently use allow direct purchase of Treasuries and I would be interested to know of any cheap retail brokers that do. Previously I used a full service broker (Williams De Broe) for Treasuries and US Corporates, but closed my account with them some time ago.

I now just hold ETFs.

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Re: US 10 Year Treasury purchase?

#178700

Postby runnygum » November 7th, 2018, 9:07 am

If there is a soft brexit won't you wipe out years of yield with fx losses?

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Re: US 10 Year Treasury purchase?

#178727

Postby hiriskpaul » November 7th, 2018, 11:05 am

runnygum wrote:If there is a soft brexit won't you wipe out years of yield with fx losses?

Or no Brexit at all following a referendum. In either scenario we would probably see the pound above $1.40, about a 6% loss. Take a potential worse case of $1.50, that would give an immediate 12% loss. Unwelcome, but not the end of the World.

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Re: US 10 Year Treasury purchase?

#178733

Postby colin » November 7th, 2018, 11:23 am

Most investors buy government bonds as a low risk low return investment,foreign currency movements introduce a level of volatility similar to equities but without the long term higher expected return to compensate for the extra risk taken.
It's not just the risk of a rise in Sterling v $ but one also needs to take into account that the US is at a higher level in the economic cycle than probably any other country, that has to reverse one day , cycles always do, then for local US investors treasuries may well rise in price but for foreign investors it's likely that a fall in the dollar will erode the benefits of holding un-hedged US treasuries.

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Re: US 10 Year Treasury purchase?

#178788

Postby hiriskpaul » November 7th, 2018, 2:39 pm

I just had a look at the performance of my US Treasuries. They have returned about 32% over the last 5 years to end Oct, measured in GBP. That compares with just 28% for my FTSE 100 ETF. Most of that return is down to the fall in the pound, but that fall will also have helped the FTSE 100. Both poor compared with the S&P 500 of course, with a total return of about 107% for the LSE listed iShares ETF.

The thing about Treasuries is that they are what global investors usually pile into during periods of turmoil.

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Re: US 10 Year Treasury purchase?

#178801

Postby colin » November 7th, 2018, 3:23 pm

I just had a look at the performance of my US Treasuries. They have returned about 32% over the last 5 years to end Oct, measured in GBP.


The above has no relevance at all to future returns.

The thing about Treasuries is that they are what global investors usually pile into during periods of turmoil.


Yes the dollar is still the worlds reserve currency but when that currency is so high v sterling it would be prudent to hedge exposure. In the event of international turmoil one would still benefit from the price rise of USTreasuries but not the currency rise of money flowing into the Dollar, but if that turmoil is caused by a US recession then the rise in Treasuries will be offset by a fall in Dollar value . The long term return from government bonds should not be expected to be more than the yield at purchase, so for 3% or thereabouts on a 10 year Treasury bond it's just not worth adding currency risk.

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Re: US 10 Year Treasury purchase?

#178827

Postby GoSeigen » November 7th, 2018, 5:28 pm

colin wrote:
I just had a look at the performance of my US Treasuries. They have returned about 32% over the last 5 years to end Oct, measured in GBP.


The above has no relevance at all to future returns.


He said he bought them 5 years ago, not that he is planning to buy them now! So their subsequent return is very relevant to his original buying decision... I didn't see any predictions about the future.


GS

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Re: US 10 Year Treasury purchase?

#178834

Postby Hariseldon58 » November 7th, 2018, 6:14 pm

Before dismissing an ETF as against a single treasury bond, because the ETF has no maturity date, I think the choice is not quite so clear cut.

The closest to a 10 year bond is the 5.25% maturing November 15th 2028 at $117.60, you know it matures at $100 and thus you will have a capital loss.

There are others that are almost 10 years and you choose to make a small capital gain or an even larger capital loss and a higher running yield.
The yield curve is pretty flat at the moment but that may change and that may affect your choice too, ie you can have a similar yield for a much shorter term and consequently less inflation or interest rate risk.

I think you need to define what you want from the investment and remember that the shape of the yield curve affects what happens during the course of your investment, ie after a year you have a 9 year bond, after two years an 8 year bond etc. The yield curve affects the capital price at these times as maturity draws nearer. It's an interesting topic but because the outcome is known does not necessarily make it easy, unless you know what your objective is.

A bond fund behaves more like a bond ladder....that can be very useful.

seekingbalance
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Re: US 10 Year Treasury purchase?

#180845

Postby seekingbalance » November 16th, 2018, 1:38 pm

Harieseldon - thanks.

Yes, I was aware of the premium issue.

But what about this one - https://markets.businessinsider.com/bon ... 9128282r06
Runs to 2027, says it pays 3.09% and currently priced at $93.5 - will that not work in the same but in reverse, with redemption at $100 in 2027?

Or this one - https://markets.businessinsider.com/bon ... 9128283w81
Runs to 2028, pays 3.09%, priced at $97.08.

Am i missing something? Is the discount included in the 3.09% yield?

Thanks

SB

langley59
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Re: US 10 Year Treasury purchase?

#180875

Postby langley59 » November 16th, 2018, 3:26 pm

The yield quoted is the yield to redemption, ie. inclusive of any capital gain/loss.

seekingbalance
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Re: US 10 Year Treasury purchase?

#180876

Postby seekingbalance » November 16th, 2018, 3:30 pm

And, further, on other of hariseldon's points...

Yes, I do understand a bond fund is like bond ladder, and i do have both a Vanguard Treasury bond ETF and a Vanguard UK Gov bond ETF, in higher value than the amount I am talking about putting into a single, or maybe more, actual Treasury bond.

And yes, I realise that a bond is about the remaining time, not the nominal term - so a 2 year old 10 year is priced like an 8 year, in fact IS an 8 year. I agree, if I can find a shorter remaining term bond than a 10 year for a similar enough yield it is probably best to lose a bit of yield, all else being equal, and bearing in mind I want a longer term fixed focus here.

My aim is to buy something yielding a fair bit more than I can get from a savings account - the most I can currently see is 2.6% but this would be taxed as I am pretty sure I can't put one in my SIPP. So that would be around 2.1% after tax. Which is the same as the best Cash ISA - but i currently don't have space in an ISA, though I would do next year, to be fair.

And hold it to term, thus giving me a reasonable return from an asset that is not an equity or a house.

And if rates go up more I'll buy another, or if UK rates go up, I'll buy some 5 year savings accounts.

So, the real question is does a 3.09% return, combined with some currency risk, worth going for.

But my other aim is some more diversification - my only assets doing well at the moment are those priced in currencies other than pounds, so a few more may not hurt.If the pound gains over the next 8-10 years I will lose the advantage the 1% extra gave me, or some of it, I realise. But most indicators suggest the pound will stay around this sort of level or fall over the medium term, in which case I would perhaps sell and realise the currency gain on the bond.

As i see it the worse that can happen is I have to gold to term, take a currency hit, and get back a little less than I put in, having received 3% a year in the meantime. In the last month I lost £6k as Accesso halved, and another £6k when IQE warned, not to mention Lloyds, Royal Mail, Persimmon among others that have fallen a shedload, so i am used to losses! And gains.
Last edited by seekingbalance on November 16th, 2018, 3:34 pm, edited 1 time in total.

seekingbalance
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Re: US 10 Year Treasury purchase?

#180878

Postby seekingbalance » November 16th, 2018, 3:34 pm

langley59, thanks, that is what i had thought, but got confused by hariseldon's point about losing $17 on a $117 - but both wash out in the end, as long it is the yield to redemption that you are looking at.

I have several UK Corporate bonds in the same situation, and just recently had an 8 year Tesco 5.25% bond redeem, with a 3% capital loss from when I bought at 103

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Re: US 10 Year Treasury purchase?

#180901

Postby Alaric » November 16th, 2018, 5:20 pm

seekingbalance wrote:Is the discount included in the 3.09% yield?


What's the coupon on these? It looks to be zero or next to zero. If that's the case, unwinding of the discount is the only way an investor sees any return.


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