'Bond math' shows traders bold enough to bet on Treasurys could reap dazzling returns with little risk

As investors snap up long-dated Treasurys following a historic rout that has seen the price of some issues cut in half, some traders are using esoteric “bond math” to justify making big contrarian bets.

In a spreadsheet shared with MarketWatch, Falk-Wallace calculated what these theoretical returns might be for a 30-year bond with a 5% coupon. Andy Constan, founder of Damped Spring Advisors and a veteran of hedge funds including Bridgewater Associates, said returns look less attractive once the “opportunity cost” of holding a one-year Treasury bill with a yield of 5.4% is factored in.

Two key concepts to keep in mind Calculating these potential returns relies on two concepts that investors use to quantify and describe the relationship between a bond’s yield and price. This is where things start to get complicated.

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