US Treasuries attractive?

Is this a time to buy US treasuries? US treasuries have way higher rates than Swiss ones (short-term 3.6%, long term 3.4%). Since inflation’s much lower in Switzerland, and USD and CHF haven’t seen significant devaluation in relation to each other in the past 5 years, US treasuries would be a nice investment for Swiss residents, wouldn’t they? Real (inflation-adjusted) returns for US treasuries are higher here than in the US.

Or did I miss something here?

Sure. Different currencies.

Yes bonds are getting more attractive, but:
Long term gains of stocks are anyway higher, and now during the bear market future expected returns are even higher than average. I have time to wait.

With US Treasuries you take currency risk and you finance US state budget. Just this fact is enough for me to question investment in US Treasuries.

If I would invest in bonds, that would be Swiss governmental ones. This ETF you can buy at Interactive Brokers:

https://www.blackrock.com/ch/individual/en/products/261158/ishares-swiss-domestic-government-bond-7-ch-fund

Current yield to maturity is 1.09%, let’s see how much it will be in 6 months.

Nevertheless, Kassenobligationen have a better risk return profile for private investors and they are also getting more and more attractive.

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Thanks, that’s very helpful!

Do I get this right: the ETF you mentioned will rotate individual bonds as long as the ETF exists, while buying an individual Kassenobligation will have one single yield to maturity? So basically, buying a short term kassenobligation for money I need, say, in a year, would be a better investment than leaving it in cash in my bank account?

I totally agree with higher returns on stocks in the long run. Bonds will likely not become an issue for me until short before retirement.

3 posts were merged into an existing topic: Kassenobligationen

I explained in a former post that 100% in stocks is not for everybody and that bonds, for most people, are a part of their long-term strategic allocation. This is to avoid panic-selling in a downturn.

The question is then: what bonds and does it make sense to invest in foreign currency denominated bonds. Durations should generally be kept short to medium, and long durations avoided. Some people stick to only CHF especially if they have a low strategic bond percentage. But foreign currencies can make sense to diversify the issuer base and make the risk even lower. Again, diversification is the main
motivation to do that and not higher interests, because in the long term real interest rates are the same across all currencies for the same notation.

Generally though bonds issued in foreign currency should be hedged against currency fluctuations because the goal of bonds in a portfolio is to reduce risk.

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The interest rate/inflation difference will be roughly the amount how much the USD will devaluate compared to the CHF.

3.5% US treasuries 10 years
1.1% CH 10y Bundesobligation

This 2.4% difference is not even close enough to make it interesting. Their inflation is 5% higher than ours, it’s very likely that the USD will devaluate more than 2.4% per year.

There is no free lunch. You need higher risk for higher returns.

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Thanks, I totally agree. So I’d be basically using bonds for diversification to stocks after retirement, and in a descending 10year glide path to a 100% stock allocation (only to reduce sequence of return risk at the beginning of retirement, and secure withdrawal rate). In that regard, I believe only long term treasuries (LTT) make sense, since historically, they’ve been least correlated to the stock market.

I’d love to use a mix of Swiss LTT and foreign, CHF-hedged LTT. Are there any cheap ETFs that fit these requirements?

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Based on the discussions on this forum you could have a look at:

  • Swiss long-term bond ETF: CSBGC0.SW
  • Global aggregate bond ETF hedged in CHF: AGGH.SW or the new VAGX.SW

If you are interested in US you might also want to check this long-term US treasuries ETF: VGLT

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You can have a look at 20 years Treasury Bond ETF (TLT), i think there is money to be made here longetrm.

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But you’d agree that holding CHF-hedged international treasuries (e.g. in addition to Swiss treasuries) could make sense from a diversification point of view? I think @ProvidentRetriever pointed that out.

The idea being: I don’t wish to put all my faith in the Swiss government / succumb to home bias.

Yes totally. As always you don’t want to put all your eggs in one basket.

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Also, I’m wondering: Might the currency hedge make holding international bonds significantly more expensive than holding local ones? To put it differently: what’s the cost of the CHF-hedge?

Delta of interest rate is the cost. Long term return is the same as local bonds with increased diversification.

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By the way it is possible to buy individual US Treasury bonds at IB. Bonds with the same time to maturity have typically the same yield to maturity, but if you pick some with a low coupon, you save on Swiss taxes.

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In fact, the delta of interest rate is not a cost in the long term because it matches the inflation one would anyway “pay” by not hedging.

The real, completely lost cost is the additional fee most banks take for forwards (typically 80bp).

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Speaking of bonds: Is it correct that US treasuries rates, as opposed to Swiss treasuries rates, can’t go negative by law? Wouldn’t that make US treasuries per se more attractive?

Nominal coupon yields were never negative for Swiss gov bonds either. Yield-to-maturity was negative but that’s market driven and this could theoretically also happen with US treasuries, as far as I can tell.

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Won’t the market be driven by the short term financing rates (the ones set by the central bank)? I have no idea, but it’s possible the US can’t make those negative (no idea).

Market is driven by supply and demand. If everybody rushes to buy 2Y treasuries, the price can be as high as one wants, and at some point the effective yield can become negative.

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Yes, the long term gov bond YTM is the expected average yield on short term financing until the bond matures + a term premium, as I understand it.

If that was the case (and assuming the law could not realistically be changed), I would indeed not expect market YTM to ever be negative.

Based on this article, such a restriction doesn’t seem to exist, though. Explainer: Fed funds futures market sees negative rates by next April | Reuters

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