Long-Dated, Low-Coupon Treasury Bonds Are Attractive

Harry MamayskyAdvisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.

U.S. Treasury rates in the long-end of the curve are 100 basis points too high relative to a fair-value model. The risk-adjusted opportunity in long-dated, low-coupon Treasuries is attractive.

Since their COVID lows, interest rates in the U.S. and globally have increased dramatically. The 10-year U.S. Treasury rate has gone from just over 0.50% in 2020 to close to 5% today.

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I wrote a month ago about a compelling counterargument to the higher-rates narrative that has become prevalent in financial circles. While 10-year rates are up an additional 30 basis points since my article, Bill Ackman, one of the major proponents of the higher-rates narrative, has covered his (highly profitable) Treasury short position, arguing “[t]here is too much risk in the world to remain short bonds at current long-term rates.”

I am in complete agreement.