Q: Could you confirm what is happening with the price of long term U.S. treasuries?
I purchased HPYT in January for the high yield to fund my RIF withdrawals. I understand the inherent risks of the structure of HPYT and anticipated some volatility but a generally a flat to upward trajectory given the forecast of reducing interest rates. I know the timeframe is short but wanted to confirm that the reason for the slide in HYPTs price is long term treasury rate increases.
Do you still anticipate rate reductions in US treasuries?
I purchased HPYT in January for the high yield to fund my RIF withdrawals. I understand the inherent risks of the structure of HPYT and anticipated some volatility but a generally a flat to upward trajectory given the forecast of reducing interest rates. I know the timeframe is short but wanted to confirm that the reason for the slide in HYPTs price is long term treasury rate increases.
Do you still anticipate rate reductions in US treasuries?
5i Research Answer:
The majority of HPYTs holdings is the US 20+ year treasury bond ETF (TLT). Roughly half of its yield in 2023 came from Return of Capital (RoC), which means that the fund's share price is likely to take a hit as half of its distribution comes from the capital of the fund.
On the other hand, bond yields have been moving higher recently, and this can also partially explain its decline in price. We expect bond yields to decline later this year or next year, but so far the trend has proven quite resilient. If we see more 'soft' CPI prints later this year, we feel that the rate cut narrative can be revived again.