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Author: brucedoe Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35400  
Subject: What To Do? Date: 11/10/2001 10:13 PM
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We have a number of Treasury Notes that are currently worth substantially more than the face value. For example, one that earns 5+ percent and matures in 2004 is quoted as being worth more than 8% more than face value. These are in an IRA so capital gains is not an issue. Especially if these get to 10% more (and with continued lowering of the Fed Funds rate, they might), I sort of feel I should do something, but these are supposed to be safe money. It is hard to get Treasury notes anymore, but, if I get one at say 2%, I would still draw even by keeping the 5 yr note in a couple of years. Of course it is likely that interest rates will be rising by that time, if not before. A part of me says I should sit tight, but another part of me says there should be something smart I could do. Then again I don't want to outsmart myself. Any suggestions?

brucedoe
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Author: foobar73 Big red star, 1000 posts Feste Award Nominee! Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2395 of 35400
Subject: Re: What To Do? Date: 11/11/2001 12:25 AM
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We have a number of Treasury Notes that are currently worth substantially more than the face value. For example, one that earns 5+ percent and matures in 2004 is quoted as being worth more than 8% more than face value. These are in an IRA so capital gains is not an issue. Especially if these get to 10% more (and with continued lowering of the Fed Funds rate, they might), I sort of feel I should do something, but these are supposed to be safe money. It is hard to get Treasury notes anymore, but, if I get one at say 2%, I would still draw even by keeping the 5 yr note in a couple of years. Of course it is likely that interest rates will be rising by that time, if not before. A part of me says I should sit tight, but another part of me says there should be something smart I could do. Then again I don't want to outsmart myself. Any suggestions?

I'm not sure what you mean by the "draw even" bit. Note that your bond has repriced itself so that the effective yield to maturity should exactly equal the yield of a "new" bond with the same maturity. Thus it does you little good (and perhaps some harm, in commissions and spreads) if you sell your current bond only to buy one which is similar. You might consider choosing a bond with a different maturity, but I can't recommend longer terms, and there isn't much left on the short end, 2004 being so close at hand. Moving the funds into stocks or some other asset class might make sense, but you'll have to see how it fits in your overall portfolio.

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Author: jrr7 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2398 of 35400
Subject: Re: What To Do? Date: 11/11/2001 10:48 AM
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As with any decision, there are some good rules of thumb to follow.

What were your objectives in buying this asset? What were your reasons for choosing it over some other asset?

Has the asset met your goals so far? Is it likely to continue on course to reach your goal?

Have any of the reasons you bought it for changed? Have there been changes in circumstances, or in the underlying association?

If you sold it, what would you replace it with? Is this better or worse at reaching your goals?

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Author: REITster Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2399 of 35400
Subject: Re: What To Do? Date: 11/11/2001 4:04 PM
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Foobar wrote, >>Thus it does you little good (and perhaps some harm, in commissions and spreads) if you sell your current bond only to buy one which is similar.<<

Watch those spreads. Several years ago I learned that I could not successfully capture all the gain created by interest rate changes on Treasury Zeros due to spreads. Perhaps simple notes would not have the same problem. My Merrill Lynch broker, where I had my account at that time, explained the significant shortfall I experienced when I sold was a result of ML estimating the value of the Zeros on my monthly statement. I think it was really the result of a very large spread.

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Author: kubbi One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2400 of 35400
Subject: Re: What To Do? Date: 11/11/2001 5:51 PM
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A part of me says I should sit tight, but another part of me says there should be something smart I could do. Then again I don't want to outsmart myself. Any suggestions?

I'd decide if this is a long term play or not, i.e. when do you need the money? And, if you ante up, where would you put the proceeds? Can you find a comparable vehicle? I tend to like them good ol' gift horse in the mouth proverbs.

Good luck,
John


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Author: pjh83 Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2401 of 35400
Subject: Re: What To Do? Date: 11/12/2001 10:58 AM
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May want to hang on in any case, but here is a little more to consider.

http://www.msnbc.com/news/byron.asp

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