A Very Boring Experiment - Bonds

[TokyoBoglehead]

Bonds can be annoying complex for foreign investors, due to currency risk. (I am ignoring JGBs). Though I do not really need them now, I want to understand my options as I will move away from 100% equities in a decade or so....

There are a few decent funds, (Emaxis slim / Rakuten offerings, Ishares treasury ETfs), but I wanted to try something more basic.

I was attracted to Rakuten offering of direct US treasuries. So I bought the following.

Bonds.png (10.33 KiB) Viewed 597 times

100 USD 2029 Strip
100 USD 2029 Note
(You can pay in YEN/USD/USD MMF/Foreign Currency MMF, which is very cool).

There is no chart to watch, yield may rise and fall. But if I hold to maturity, I will get my yields/coupons. Of course, if the yen bounces back, this is all a wash.

I wish Rakuten had different maturities. A bond ladder (Buying bonds every year, so the mature yearly in sequence in retirement, would be a great option to have!

So far I would say I love the pure simplicity of strips vs notes.

[TokyoBoglehead]

Despite the Yen falling, and yields rising, the value somehow dropped? Strange....


Purchased at 135.64 円/USD
Current 136.09 円/USD
Yields - Rose a few bibs.

[mighty58]

As you have both buy and sell buttons there, I'm assuming the current value just reflects the price if you were to sell in the secondary market today.... and in addition to the factors you mentioned, time to maturity also plays a factor (as well as others, bond valuation is a complex topic). However, you can effectively ignore the secondary market value if your intention is simply to hold to maturity. I'm wondering if you bought off the secondary market, or as a primary offering directly from the government.

An ancillary question,and putting aside currency for a moment, but are you not worrried about locking in underperformance vis-a-vis inflation? Would be interested to hear your thinking on that.

[TokyoBoglehead]

As you have both buy and sell buttons there, I'm assuming the current value just reflects the price if you were to sell in the secondary market today.... and in addition to the factors you mentioned, time to maturity also plays a factor (as well as others, bond valuation is a complex topic). However, you can effectively ignore the secondary market value if your intention is simply to hold to maturity. I'm wondering if you bought off the secondary market, or as a primary offering directly from the government.

An ancillary question,and putting aside currency for a moment, but are you not worrried about locking in underperformance vis-a-vis inflation? Would be interested to hear your thinking on that.

As I bought it directly from the Rakuten interface, it must have been via the secondary market. I believe only Americans can buy directly, via Treasury Direct.

This was a simple experiment, with very low risk. Yields will probably go up, and the value may very well drop. But, as you said, if I hold to maturity there is no issue.

Currency risk and inflation are always issues with bonds. I see the Yen continuing to drop until US treasury rates stabilize and begin to trend down. That could take years. Higher inflation levels here in Japan? Definitely possibly, but I do not see interest rates budging....ever. Too much debt.

If Treasury rates reach 4-5% I may consider locking in some real money. I wish we had more option though. There are very few maturities to choose from among Japanese brokers.

[TokyoBoglehead]

Ended the experiment, as I now understand the process.

If you sell in the secondary market, instead of waiting for maturity, you can receive your proceeds/losses in USD or yen.