If you do not need the money for any purpose until 2036, then your best estimate of the returns for holding on are the current Yield to Maturity of the bond. Which will be a function of: coupon, price & time to maturity.From 2019 to 2021 a broker (who I wasn't and couldn't supervise) bought (on my behalf) $20,0000 (face value) of cusip 912810FT0 (4.5% US treasury bond; maturation 2036) for an total cost of $25,049.
It is now worth $20,684.38.
Am I better off selling it and buying a current shorter term bond (maybe a UST 1 yr that pays 5.1%) or (AA allowing) VTI?
Put another way, what would be the argument (explanation, analysis) for holding on to it (other than 'rates could drop below 4.5%')?
Thank you.
We are currently in an inverted yield curve situation: short rates > long rates. Historically those relationships are the great minority of times in bond markets. They reflect an effort by the Federal Reserve to quell inflation by raising short term rates. The market believes that eventually inflation will come under control, and so long term rates tend to stay lower. If interest rates come down, the longer term security (yours) will move up correspondingly in price. Whereas for the investor in the short term security, they will have to accept a much lower yield when they reinvest ("roll") their money.
It's only if you forecast that you will need the money sooner, that you would switch to a shorter term security.
The main merits of owning a bond fund are greater liquidity. In this case, the duration (sensitivity to changes in interest rates) of that fund will likely be lower than the single security (because it holds more bonds of shorter duration).
The bad news is you bought at a bad time. The good news is that is a sunk cost, and is not relevant to future consideration.
BTW is the tax loss allowable? I would assume not. But if it is, then realising that loss now could be quite handy - money in the bank.
Statistics: Posted by Valuethinker — Wed Jun 19, 2024 8:02 am