Despite the massive drop in rates it's 2, the higher yield eventually beats the gains from duration. Was a bit surprising to me.pic.twitter.com/mipcssd2oJ
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5y risk free bond with a starting yield of 20% and flat yield curve. Assume you sell it every year after 1 year and buy a new 5y bond. In scenario 1 yield declines 2% per year for ten years. In scenario 2 yield is constant. Which scenario has higher returns after a decade?
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Inspired by
@choffstein thread here -https://twitter.com/choffstein/status/1445038271579443201?s=20 …1/ Why the bond bull market had almost nothing to do with declining interest rates (and why you shouldn't
on roll yield or leverage)
A (long) 
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(I wrote about this back in 2017 too: https://blog.thinknewfound.com/2017/04/declining-rates-actually-matter/ …)Show this threadShow this thread
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2, final answer
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Would it be different if further out? 10yr or 20yr due to duration and convexity ? What tenor is the flip point?
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Nice one. Check this post by
@Jesse_Livermore for a similar exercise in equities, taking it a step further even, as divs reinvested at lower valuations overcompensate even a big upfront price hit.https://www.philosophicaleconomics.com/2014/05/why-a-66-crash-would-be-better-than-a-200-melt-up/ …Thanks. Twitter will use this to make your timeline better. UndoUndo
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