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Sorry I hide my true identity but I'm a physicist/engineer, native contrarian and idea generator. I am an eclectic dividend investor with motto "In God We Trust, All Others Pay Cash" applied to companies I invest in. I like to read /and read a lot - did you look on my SA photo 8-)? /... More
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  • A New (as Far As I Know) Sociological Bonds Questionary (18 Feb. 2012) 13 comments
    Feb 19, 2012 10:28 AM
    Recent discussions about dividend growth stocks vs. bonds lead me to the following new (as far as I know) sociological questionary proposal.

    Let imagine that US Treasure issues new type of unliquid bonds with the following 3 rules
    a) investor can buy a bond only from US Treasure at principal;
    b) investor cannot sell the bond to anybody in the world;
    c) US Treasure repays the same principal after X years.

    If you agree to invest in such bond:
    How big should be the bond yield if the bond pays interest annualy and
    1) X= 30 years,
    2) X=50 years,
    3) X=100 years

    What percentage of your income you would like to see from such bonds interest?

    I'd appreciate if you answer these questions and indicate your age group.

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Comments (13)
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  • SDS,


    If I understand your question correctly, and I'm not certain I do, I would _not_ buy...


    18 Feb 2012, 06:20 PM Reply Like
  • Author’s reply » Thank you Kiisu, this is also the answer.
    18 Feb 2012, 07:26 PM Reply Like
  • I'm not sure I understand the question
    a ten year bond with a fixed rate that guarantees principal payment is a bond, you only stipulated it is illiquid so it is a normal bond with no secondary which should earn a slight premium over 10 year treasuries.


    A bond where the interest is accrued and paid back maturity is a zero coupon bond you can calculate its market value by plugging in the interest rate, the maturity and putting zero into the payment part of the formula any financial calculator or excel....or check the prices in the market on various websites, they are issued all the time and then add whatever premium you think is appropriate for liquidity.


    Of course there will always be a price at which someone will buy a security from you so the assumption of zero liquidity imo is not security back from you and assume the illiquidity risk the is tin he price, so I dont find the illiquidity is ablsolute. After all GM and other bonds traded at a (very low) price, in bankruptcy bondholders seldom get zero at liquidation, there are almost always some assets that are of value and debtholders have first lien


    On the other hand govt rates are such that few would buy this security in the current market. On the other hand such a security from a high yield with a current coupon of 7% might be attractive to someone since the price fluctuations are less than equities and debt holders are senior to equity holders in bankruptcy
    19 Feb 2012, 04:10 AM Reply Like
  • I would invest at least 1/2 of my portfolio if I could lock in long term returns today as follows: (these are the rates that I see providing good long term returns and not at that level because of significant ratings downgrades)
    30 Yr: 7.5%
    50 Yr: 8.5%
    100 Yr: 10%


    I am 51.
    19 Feb 2012, 11:14 AM Reply Like
  • . A reasonable expectation for a long term bond is 2-3% above inflation. Which means you could get your 10% when inflation is around 8%...and you probably wouldn't be interested
    What matters is the real return the nominal return is actually not very relevant, whatever your numbers if you use a nominal rate and lock it in your are taking all the inflation risk.


    You are looking for equity type returns from a treasury bond...never happend. Google equity risk premium.
    19 Feb 2012, 12:50 PM Reply Like
  • He asked a question. I answered. He did not ask what I thought I might be possible.
    19 Feb 2012, 02:28 PM Reply Like
  • Author’s reply » I simplified ( reduced number of variables after Lawrence Weinman comment)
    Thank you MartyFL, this is kind of answers I'm looking for!
    19 Feb 2012, 12:33 PM Reply Like
  • Author’s reply » MartyFL
    "He did not ask what I thought I might be possible."
    I just conduct survey. You are more than welcome to provide your thoughts.
    19 Feb 2012, 05:29 PM Reply Like
  • my answer; inflation+5% guaranteed I would invest 100% of my money and my clients money and shut down my business, no one could ever offer a better risk/return guaranteed.


    Finance aint physics but that one would never occur for long if at all I would jump on the opportunity.


    19 Feb 2012, 11:13 PM Reply Like
  • Author’s reply » Lawrence,
    I see your point and wonder if you can estimate inflation
    20 Feb 2012, 12:14 AM Reply Like
  • I think what LW wants is adjustable rate so it always pays inflation+5%.


    In other words, something much like an iBond with 5% base rate.
    20 Feb 2012, 05:21 PM Reply Like
  • SDS asked me to re-review and re-reply, so here goes...


    I have a federal pension, and my opinions are colored accordingly.


    Due to historical spending patterns and current debt levels, I do not have "full faith and credit" in the Federal Government's future ability to pay.


    To put it simply, I see a future that includes one or more Federal defaults. I don't know when. I don't know the details. But unless circumstances drastically change, default _will_ happen.


    Default might be the simple-in-your-face refusal to pay... it may be payment in worthless notes, it may be some other sleight of hand, but I expect investments in Federal debt incur substantial and increasing risk of loss of purchasing power.


    As a result, at some point, I believe, my pension will be cut, possibly eliminated.
    Accordingly, I choose not put additional funds at risk with, what I view as, an insolvent enterprise.


    If you believe there is no risk of a Federal default in the next 30, 50 or 100 years; if you believe the Federal Government is and will continue to be solvent; or if you believe these problems are either trivial, unimportant, or immediately solvable, then your answers and actions may be very different than mine.


    Good Luck and Best Wishes to All...


    20 Feb 2012, 01:42 AM Reply Like
  • Illiquid and fixed rate? 30yr minimum term? Not interested.
    20 Feb 2012, 05:19 PM Reply Like
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