Tuesday, October 23, 2007 0 comments ++[ CLICK TO COMMENT ]++

Sold: 20 yr US Treasury bond ETF (TLT)

I sold my iShares 20 year US Treasury bond ETF (TLT) today. I don't know what to make of this investment. Overall it was a dissapointment (it was a loss) but I learned some valuable lessons (currency fluctuations; don't invest based on the economy). The return was positive in US$ but negative in Canadian dollars (my local currency and what really counts).

The original thesis for investing turned out to be only partially correct. I invested in TLT because I thought that bond yields will decline due to a slowing economy and a stock market correction. I was targetting a 20% return based on a 1% drop in the yield (duration of the bond is roughly 20 years and each 1% change in yield results in roughly 20% change in price). I also thought that the Federal Reserve will start cutting rates in mid-2007 and there will be capital flight into the bonds.

Well it never really turned out as I anticipated. The stock market never really corrected and the economy never slowed to the degree I thought it would. The Federal Reserve did cut and I think they will cut further but it didn't happen as quickly as I thought it would. The yield probably dropped about 0.4% from my purchase (my goal was 1%). I still think there is more upside but I feel that there are better opportunities (I'm thinking of adding to my TRB risk arbitrage position).


Sale Price: US$ 90.21
Purchase Price: $85.08

Total Return (US$): 10% (about 6% capital gains + 4% interest)
Total Return (C$): -7.05%

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