By David Enna, Tipswatch.com
After a long journey home Monday — flying from Budapest to Munich and then on to Charlotte — I am just about ready to rejoin the real world. But with jet lag.
On our entire trip from The Hague to Budapest, I was rarely connected to financial news, even when I had sometimes-decent internet access. I had too much to do and see. So now I am back and trying to reconstruct why my portfolio did so well in the month of July– even though the Federal Reserve again raised short-term interest rates.
Here is my snapshot of the month:
That’s a pretty good month overall. Nearly every investment group saw a gain in total return, and the stock returns were sizable. I’m noticing that investors seem to be backing off a bit today, but nothing serious.
Looking at this chart, it’s obvious that short-term Treasurys are very attractive investments right now, all the way up to the 1-year term. It also appears that the inverted yield curve could be starting to reverse course, but very slowly.
My one complaint
I’ve got a gripe about July, but it really isn’t a major gripe. It’s that #$@!&* 10-year TIPS auction of July 20, which generated a real yield to maturity of 1.495% — decent, but about 8 to 10 basis points lower than I expected. Again, that’s nothing serious, except that in a matter or days real yields rebounded, and now that same TIPS is trading on the secondary market with a real yield of 1.67%.
Because I wasn’t following financial news, I could find no reason for the sudden dip in real yields on the exact date of the auction. Yes, the auction generated strong demand, but three days later, the 10-year real yield popped higher. Is investor demand for inflation protection increasing? Could be, but July sent mixed messages.
I’ll keep trying to figure it out. If you have ideas, post them in the comments.
A recap of the trip
My site isn’t a travelog, but a lot of readers have been asking about this three-week holiday. It was the Grand European voyage on the Viking cruise line. The vessel was a 443-foot-long Viking riverboat with about 190 passengers and 53 crew. One thing I really liked about this itinerary is that it traveled to many small and historic towns in Germany, where we rarely have traveled.
Everything went pretty much according to schedule. The food was excellent, with many healthy choices. Many of the sites were sensational. Viking generally attracts active seniors, mostly American but we had at least 15 Australians aboard, along with some Canadians and a couple from New Zealand.
Water levels were fine, but that is always a worry on these rivers. The Main-Danube connection canal wasn’t passable, so we had a one-day boat switch from the Viking Modi to the Viking Skirnir. All that went off without a hitch — pack up, tour Nuremberg, eat lunch, bus to Passau and board the new ship.
The trip ended in Budapest, where we got to visit with long-time friends who live there. (She visited Charlotte 35 years ago on a journalism program.) We’ve been to Budapest five times, but it is always special.
If you’d like to ask questions about Viking trips (or Overseas Adventure Travel as an alternative), email me at tipswatcher@gmail.com.
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David Enna is a financial journalist, not a financial adviser. He is not selling or profiting from any investment discussed. I Bonds and TIPS are not “get rich” investments; they are best used for capital preservation and inflation protection. They can be purchased through the Treasury or other providers without fees, commissions or carrying charges. Please do your own research before investing.
Treasury Inflation-Protected Securities 
Sounds like a great trip – I was born in Mainz right at the Rhein (German spelling) river, about a mile up the hill, grew up in the area and lived a little south of Mainz (15mi) until in 2007 I moved to Chicago for work and ever since been here and established new roots with my family.
In my opinion the reason for 10 year yields going up, which coincidently happened, right after the 10 year-TIPS auction had to do with Japan flexing its commitment to yield control on their 10-years Japanese Government Bonds. Japan owns at least a Trillion dollars worth of our treasuries. IF, though unlikely in the short-term, JGB yields start becoming competitive, it will impact our yields a lot more. Japan is finally starting to address their inflation problem.
Credit downgrade is certainly a self inflicted wound. The Roman empire was not built in a day and it did not fail in a day. Our current political extremism is very unhealthy for so many reasons including puting at risk US dollar’s status as a reserve currency. Our competitors are working super hard to challenge this status. Not much should change in our lifetime, but never say never.
Can you post the Viking referral here. I clicked on the link and got a error message. Sounds like a great cruise.
I have learned that Viking won’t accept referrals posted publicly, so I’ve changed the wording of that paragraph and made the email address easier to see.
Great trip!
David (and others), I’d be interested in your thoughts on Fitch’s credit rating downgrade.
The credit downgrade, to me, seems to be deserved because of the constant political gridlock resulting in debt-ceiling standoffs and potential government shutdowns. Real action to lower federal deficits has been minimal, and the Treasury’s ability to issue debt seems to always be a few months away from a crisis. Standard and Poors downgraded U.S. debt in 2011 to AA+ and never raised it. However, after that action by S&P, Treasury yields starting falling dramatically because of a stock market fall and Federal Reserve quantitative easing. This time, the Fed won’t be doing quantitative easing and the current higher interest rates make the U.S. debt even larger. We can only hope that U.S. debt continues to retain its global appeal.
You may already know this but qqqm is exactly the same fund as qqq but with lower expenses (0.15 vs 0.20). Since you were mentioning how the 10 years tips was 8-10 bps below what you expected I figured pointing out a 5 bps difference was worthwhile.
I didn’t know this, because I don’t invest in QQQ. These are from the same company, Invesco. Not sure why they both exist, but QQQM has the additional advantage of allowing dividend reinvestments. But QQQ has much higher volume, so maybe less bid-ask spread?
Probably better that you don’t invest in Qqq or qqqm as not recommended by most of bogleheads. Somehow I thought that was a spreadsheet of your personal investments. 🙂
The Random Character Of Interest Rates: Applying Statistical Probability To The Bond Markets, Joseph E Murphy, 1990.
Many factors influence investor sentiment in the bond market. The author concludes most are not very predictable.
I agree with the author.