Vanguard's long term Treasury fund, started in 1986, set a new all time low price record yesterday: What a coincidence

 VUSTX fell to $7.37 yesterday, October 19, 2023.

Until the bond debacle of 2022, the lowest price ever was set way back in 1987, also on October 19, aka Black Monday, when the S&P 500 crashed 20.47% in its worst single day ever.

2022's new all time low for VUSTX at 8.16 had occurred on October 24, missing the anniversary of the old all time low by just three days. Also a very odd coincidence.

The debacle has only continued in 2023, and VUSTX prices haven't seen $8 since September 22nd.

ZIRP since the Great Recession is ultimately to blame for the current mess in long term Treasury securities. The clamor it created for yield drove bond investors long, culminating in the highest nominal prices ever paid for long term UST in March 2020, and the lowest yields. 30Y UST yield crashed to 0.99% on March 9, 2020, 20Y to 0.87%. Yields across the board in 2023 for 2Y to 30Y have set records for this cycle in October. Yesterday 20Y demanded 5.30%, 30Y 5.11%.

No one wants that 2020 and prior junk now, so wherever it sits it's causing collateral problems, at banks, insurance companies, pension funds, et cetera. And on the Fed's balance sheet: As of October 18th the Fed has $1.503922 trillion of UST maturing in more than 10 years on its balance sheet. It basically has to keep it until it matures, and it pays it very little to return to the Treasury as it does.

Are prices done falling?

Confident pretenders said so a year ago this month, and now here we are with $TLT investors down another 12.22% since then.

Given the obscene overvaluation of stocks, and the demand for higher yields by bond investors, cash still seems the safest place to be. VMRXX, Vanguard Cash Reserves Federal Money Market Fund Admiral Shares, has returned 4.00% ytd. You continue to lose to inflation, however.

Nothing is ever perfect.

 

1987 high and low

2022 high and low to the left, all time high and low to the right

Dramatic price action today for 30+ years old Vanguard Treasury funds

VFISX inception date 10/28/1991 New all time low price set today 09/26/2023 close : $9.71

VFITX inception date 10/28/1991 All time low price: $9.57 on 11/21/1994 Price 9/26/2023 close: $9.59

VUSTX inception date 5/19/1986 New all time low price set today 9/26/2023 close: $7.88 

  

 

US Treasury yields pushed to new cycle highs last week despite another Fed interest rate pause

 Cash was about the only thing which did better week over week on Friday. Treasuries and bonds generally took a beating, as did stocks.

The UST yield curve aggregate closed up a net 1.27% week over week on 9/22, to an average of 5.0707692, the highest Friday close yet for this cycle.

Yields in the aggregate made a new high for this cycle on Thursday, for an average of 5.0915384. 

Here's the year-to-date performance for key categories using some commonly used Vanguard funds:

Treasury Market VFISX 0.66% VFITX -0.70% VUSTX -5.57%;

Investment Grade Market VFSTX 2.08% VFICX 1.32% VWESX -0.83%; 

Total Bond Market VBTLX -0.03% (+0.44% previous week);

Cash VMFXX 3.58% (3.48% previous week);

Total Stock Market VTSAX 12.95% (16.45% previous week).

 

 

Let's check in on the US Treasury yield curve and year to date performance of selected Vanguard funds

The UST yield curve aggregate closed up a net 0.68% week over week on 9/15, to an average of 5.006923, the first Friday close this cycle in the 5s.

 

As expected, fixed income isn't doing well in this rising-rate environment. Stocks have done surprisingly well this year, and even cash has beaten bonds.

 

YTD performance:

 

Treasury VFISX 0.68% VFITX -0.26% VUSTX -4.12%;

Investment Grade VFSTX 2.21% VFICX 1.73% VWESX 0.00%; 

Total Bond VBTLX 0.44%; Cash VMFXX 3.48%; Total Stock VTSAX 16.45%.

 

Other popular vehicles: 

 

$SPX 16.37%

$AGG -2.12%

$TLT -8.38%. 

 

It's been a terrible year so far for investors in US Treasury securities because of the rising rate environment, but great for stocks

UST yields rose a net 1.31% in the aggregate week over week on 7/28.

DFF rises to 5.33% after the latest FOMC rate hike.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year to date Treasury, Total Bond, Cash, and Total Stock performance using popular Vanguard funds:

VFISX +0.75% VFITX 0.90% VUSTX 1.58% VBTLX 2.05% VMFXX 2.75% lol VTSAX 19.99%!

Stocks have been the place to be, and cash has beaten even the total bond market.

Meanwhile stocks are obscenely overvalued at 169 using the latest report of GDP out Thursday:

 

The US Treasury crash is epitomized by what's happened to Vanguard's long term Treasury mutual fund VUSTX

 

 

 

 

 

 

 

 

 

 

 

 

The fund is down to $8.36 tonight, 2 cents away from its all time low set on October 19, 1987 at $8.34. That was 35 years ago last night, when the stock market fell 20% in one day.

The 30-year US Treasury back then paid 10.25% on that date. Tonight it pays just 4.24%.

This Vanguard fund, which invests in such securities, year to date has returned -33%. Given the yield discrepancy, it would seem foolhardy to believe that the bottom is in. I wouldn't be surprised if the fund makes dramatic new lows, never before seen.

Meanwhile imagine losing money like that on America's safest of investments.

It's truly appalling and ranks right up there with America losing its AAA status under Barack Obama. I guess it's fitting that it's happening under his former Vice President.

This is a bitter anniversary of fear, and a day of loathing

Exactly 35 years ago tonight this fund marked its all time low at $8.34 when stocks crashed 20% in one day, October 19, 1987.

It happened because it was a flight to safety, the US long bond being the safest haven in the world. Prices move inverse to yields. The price crashed because everyone plowed into it, and the yield soared to 10.25% as a result. As such, the all time price low is meaningless for bonds, but full of meaning for stocks.

At $8.49 tonight, however, the price is just $.15 higher than it was 35 years ago, but for an entirely different reason.

In 1987 the price crashed due to stock market fear; in 2022 it's due to bond market loathing, in particular, loathing of existing US debt which pays too little for the risk being taken. At 4.15% tonight, yield on the long bond has a long way to go to credibility. More importantly, the market is SHOUTING that trillions of dollars of existing US debt pays its holders a reprehensible sum.

People should think hard about what that means.

Faith in America hangs in the balance and is found wanting.

 

 

Through Oct 14 the traditional 60/40 401k portfolio is down a net 21% in 2022, not counting inflation

 Bonds are supposed to perform well as the safe haven asset when stocks fall, reducing the net impact to the portfolio when equities decline.

But not this year!

Bonds have actually crashed on the long end, down even more than stocks, as stocks entered a bear market.

The bond crash is a market statement rebuking the spending those bonds have represented: Not enough return for the risk.

So far the spendthrift Congress remains tone-deaf, leaving it to the Fed to raise interest rates . . . ever so feebly.

No one in his right mind believes raising interest rates 300 basis points is going to have much impact on inflation raging at 800 basis points.

Vanguard's Worst Performing Bond Funds In 2013

Long Term Treasury Fund, VUSTX:                          -13.03%

Long Term Government Index Fund, VLGSX:     -12.74%

Long Term Bond Index Fund, VBLTX:                       -  9.13%

Inflation Protected Securities Fund, VIPSX:          -  8.92%

Long Term Corporate Bond Index Fund, VLTCX: -  6.86%

Long Term Investment Grade Fund, VWESX:       -  5.87%

And as badly as they have performed, I don't see a net asset value for any fund which represents a bargain: they all still look too expensive to me.