No. of Recommendations: 2
In the face of an extended sell off in equities - and once you've exhausted your cash/MMF and tneed to tap your bond holdings, is there any obvious answer to which would hold up better or - a 10 year conventional bond or a 10 year TIPS. Just seeing what has happened to prices on 10 year bonds this past year makes me realize that they are far from a risk free asset / couunter cyclical equity hedge...
I see no reason why TIPS or Treasuries would perform differently in an equity sell-off - both would drop along with stocks. The difference would be between TIPS/Treasuries with shorter and longer terms.
And I much prefer a shorter term than 10y for 3 reasons:
(i) The rates are about 1% higher, no doubt because the market thinks rates are headed lower (recession, or just inflation being whipped but with a soft landing);
(ii) Stocks are a better long-term bet, so in general I want to own stocks, not Treasuries. If I'm buying Treasuries, it's because I want to hedge my bets in case stocks plunge and I need cash to live off of, or even to buy more stocks at lower prices. Bonds with longer terms are a poorer hedge, because they will crash along with stocks.
(iii) Weakest argument, since it is probably pretentious of me to expect to outguess the market: I think rates are going higher, not lower, so I don't want to lock in 5% when rates go to 6-8-10%.
DTB
