I've always stayed away from bonds (less than 10% of my portfolio) because I have an idea that the market may not be incentivized to keep their risk-adjusted return in line with stocks.
If I'm Microsoft, I have 150 billion dollars in ready cash. I need to park that somewhere. I can't just open up a bank account because that only insures a quarter million. So what do I do, I'm going to buy bonds. Probably treasuries.
If the treasuries I'm about to buy with my 150 billion are returning 5%, then great, I'll probably stay ahead of inflation while I look for opportunities to use this money. But even if the treasuries are returning 3% or even 1%, I'm still going to buy them - because the point of this is not to make money, the point is to park my billions somewhere safe.
So if these corporate titans' demand for bonds is immune to their risk-adjusted return, nothing will stop them from continuing to buy and driving up the price / driving down the yield, right?
If I'm Microsoft, I have 150 billion dollars in ready cash. I need to park that somewhere. I can't just open up a bank account because that only insures a quarter million. So what do I do, I'm going to buy bonds. Probably treasuries.
If the treasuries I'm about to buy with my 150 billion are returning 5%, then great, I'll probably stay ahead of inflation while I look for opportunities to use this money. But even if the treasuries are returning 3% or even 1%, I'm still going to buy them - because the point of this is not to make money, the point is to park my billions somewhere safe.
So if these corporate titans' demand for bonds is immune to their risk-adjusted return, nothing will stop them from continuing to buy and driving up the price / driving down the yield, right?
Statistics: Posted by Tamalak — Thu Dec 21, 2023 9:49 am — Replies 11 — Views 305