There was a time when someone could have said, "I'd like a 10 YR TIP that doesn't yield 0%." Now 0% is a desirable yield.
Bonds: What Are They Doing? Are They Doing Things?? Let's Find Out!
-
- Posts: 4215
- Joined: Sun May 05, 2019 11:23 am
Re: Bonds in free fall
Re: Bonds in free fall
I was pricing out some 10 YR TIPS last night and the Vanguard bond calculator basically said:Robot Monster wrote: ↑Fri Mar 26, 2021 2:05 pmThere was a time when someone could have said, "I'd like a 10 YR TIP that doesn't yield 0%." Now 0% is a desirable yield.
"Give me $20K now and I'll give you back $15K (face value) 10 Years from now"
I know the calculator isn't very smart about how TIPS work, but man did it say something about the times we're in.
Global stocks, IG/HY bonds, gold & digital assets at market weights 75% / 19% / 6% || LMP: TIPS ladder
Re: Bonds in free fall
For $20,000 at today's price, you could buy $18,395 face value of the 9 year, 10 month TIPS (i.e. Jan 2031 maturity). This TIPS also pays a .125% annual coupon (about another $230). I'm not sure how VG comes up with $15K. They must have their web programmers working this one as well.watchnerd wrote: ↑Fri Mar 26, 2021 3:11 pm I was pricing out some 10 YR TIPS last night and the Vanguard bond calculator basically said:
"Give me $20K now and I'll give you back $15K (face value) 10 Years from now"
I know the calculator isn't very smart about how TIPS work, but man did it say something about the times we're in.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
Re: Bonds in free fall
I know, right?FIREchief wrote: ↑Fri Mar 26, 2021 4:24 pm
For $20,000 at today's price, you could buy $18,395 face value of the 9 year, 10 month TIPS (i.e. Jan 2031 maturity). This TIPS also pays a .125% annual coupon (about another $230). I'm not sure how VG comes up with $15K. They must have their web programmers working this one as well.
I looked at what the calculator spit out and thought of submitting a support ticket, but realized I don't want to have to explain TIPS calculations to a web developer.
Global stocks, IG/HY bonds, gold & digital assets at market weights 75% / 19% / 6% || LMP: TIPS ladder
Re: Bonds in free fall
Free fall stopped. It's up to you whether you want to put your cash back and avoid the liquidity trap for everyone. Thank you in advance.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
Re: Bonds in free fall
No doubt. That’s the entire market though. Might have something to do with the 7tr of fiscal and monetary stimulus.anon_investor wrote: ↑Tue Feb 16, 2021 5:34 pm The fact that the 30 year treasury yield is 2.08% today, the highest it has been since 2/12/2020 (2.09%), is crazy.
One year later it is as if nothing happened...
Re: Bonds in free fall
You're probably right for now. No need to thank me. I haven't taken any action - still breathing on the embers of my bond holdings.
Re: Bonds in free fall
Embers can ignite small stuff. Then you have flame. Then you put bigger stuff on there. Then you can have a fire.
Personally, I think the embers are the best most fascinating part.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
Re: Bonds in free fall
Speaking of "falling", real yields on the 30-year just fell back into negative territory.
"Old value investors never die, they just get their fix from rebalancing." -- vineviz
Re: Bonds in free fall
At the current yields, how many years to breakeven after the losses since the beginning of the year?
Re: Bonds in free fall
Were you buying 30 YRs?
Global stocks, IG/HY bonds, gold & digital assets at market weights 75% / 19% / 6% || LMP: TIPS ladder
Re: Bonds in free fall
How can I answer that without knowing the duration?
Global stocks, IG/HY bonds, gold & digital assets at market weights 75% / 19% / 6% || LMP: TIPS ladder
Re: Bonds in free fall
Nah, just keeping an eye on the prices...
"Old value investors never die, they just get their fix from rebalancing." -- vineviz
Re: Bonds in free fall
You should be able to compute that pretty easily.
(assuming no further changes in interest rates)
Global stocks, IG/HY bonds, gold & digital assets at market weights 75% / 19% / 6% || LMP: TIPS ladder
Re: Bonds in free fall
Commercials most relatively bullish vs small speculators in the long bond, since late Jan 2020 before the Covid crash;
Amateur Self-Taught Senior Macro Strategist
Re: Bonds in free fall
Taking profit on 1/3 of my TMF position here. Looking back my two entries were a day or two either side of the March bottom. We’ll see if long bonds have enough technical strength to run further. TIP/SCHP are now positive for the year.NoRegret wrote: ↑Tue Mar 16, 2021 7:25 pmQuick FYI, now that everybody (including Bill Gross) is talking about 3-4% inflation, TLT is seriously oversold and showing a rare divergence with money flow index (MFI).
https://schrts.co/kiehxwrE
Picked up some TMF as a short term trade while still thinking TIPs will act better than nominal bonds. YMMV.
There has been pronounced negative serial daily correlation (up day, down day) in almost every market, at some point strong trends should emerge.
Market timer targeting long term cycles -- aiming for several key decisions per asset class per decade
Re: Bonds in free fall
Nice. Still in the rest of your TMF?NoRegret wrote: ↑Fri May 07, 2021 1:57 am Taking profit on 1/3 of my TMF position here. Looking back my two entries were a day or two either side of the March bottom. We’ll see if long bonds have enough technical strength to run further. TIP/SCHP are now positive for the year.
There has been pronounced negative serial daily correlation (up day, down day) in almost every market, at some point strong trends should emerge.
Re: Bonds in free fall
Yes, May 6 turned out to be a local top (in bond price) before the big NFP miss and a small correction. My price objective when entering this trade was just below $26 so bond price needs to make a run from here.000 wrote: ↑Thu May 20, 2021 6:58 pmNice. Still in the rest of your TMF?NoRegret wrote: ↑Fri May 07, 2021 1:57 am Taking profit on 1/3 of my TMF position here. Looking back my two entries were a day or two either side of the March bottom. We’ll see if long bonds have enough technical strength to run further. TIP/SCHP are now positive for the year.
There has been pronounced negative serial daily correlation (up day, down day) in almost every market, at some point strong trends should emerge.
This is a tiny part of my portfolio that I really shouldn’t be spending much time on. Far more critical is whether there will be a rotation out of commodities/value and into FANG and an index melt-up.
Market timer targeting long term cycles -- aiming for several key decisions per asset class per decade
Re: Bonds in free fall
Saw an article over at Bloomberg that said that the long bond is now positively correlated to equities. That's not good news.
Re: Bonds in free fall
Agree with that view for the next 5-10 years, but nothing moves in a straight line. If Grantham’s epic bubble comes to fruition it’d be a tragedy to sit out.
Market timer targeting long term cycles -- aiming for several key decisions per asset class per decade
Re: Bonds in free fall
Market timer targeting long term cycles -- aiming for several key decisions per asset class per decade
Re: Bonds in free fall
Say my target allocation is 60/40 VT/BNDW.
Say I am currently 60/40 VT/CASH and do not own any bonds.
In this environment with bond yields at historic lows and bond prices at very high levels, does it still make sense for me to start buying bonds if I own no bonds right now?
Is there any upside to bonds in the next 10 years?
Is there any benefit left in buying bonds now? There seems to be no upside to bonds in the future (with the current yields) and they may be even positively correlated with stocks now so there may no longer even be any diversification benefit.
If I am 40% CASH should I still start buying BNDW now or stay CASH for reasons above? What would you do and why?
Say I am currently 60/40 VT/CASH and do not own any bonds.
In this environment with bond yields at historic lows and bond prices at very high levels, does it still make sense for me to start buying bonds if I own no bonds right now?
Is there any upside to bonds in the next 10 years?
Is there any benefit left in buying bonds now? There seems to be no upside to bonds in the future (with the current yields) and they may be even positively correlated with stocks now so there may no longer even be any diversification benefit.
If I am 40% CASH should I still start buying BNDW now or stay CASH for reasons above? What would you do and why?
-
- Posts: 16054
- Joined: Fri Nov 06, 2020 12:41 pm
Re: Bonds in free fall
If your target is really 60/40 VT/BNDW then you should move toward that target, it's simple as that.calcada wrote: ↑Fri May 21, 2021 12:12 am Say my target allocation is 60/40 VT/BNDW.
Say I am currently 60/40 VT/CASH and do not own any bonds.
In this environment with bond yields at historic lows and bond prices at very high levels, does it still make sense for me to start buying bonds if I own no bonds right now?
Is there any upside to bonds in the next 10 years?
Is there any benefit left in buying bonds now? There seems to be no upside to bonds in the future (with the current yields) and they may be even positively correlated with stocks now so there may no longer even be any diversification benefit.
If I am 40% CASH should I still start buying BNDW now or stay CASH for reasons above? What would you do and why?
But before doing so, you should reconsider if that target makes sense, as you seem to have a lot of hesitation. Your target AA has to be something you feel comfortable sticking with, regardless of market conditions.
Re: Bonds in free fall
I am comfortable with my target AA of 60% stocks. I am hesitating on what to do with the 40% cash and whether I should put it in bonds. I struggle to see any upside and benefit to bonds in the future.Marseille07 wrote: ↑Fri May 21, 2021 12:20 am If your target is really 60/40 VT/BNDW then you should move toward that target, it's simple as that.
But before doing so, you should reconsider if that target makes sense, as you seem to have a lot of hesitation. Your target AA has to be something you feel comfortable sticking with, regardless of market conditions.
-
- Posts: 6103
- Joined: Sat Mar 11, 2017 6:51 am
Re: Bonds in free fall
I think the disconnect is a 60:40 VT:BNDW portfolio has a higher longer-term expected return than a 60:40 VT:cash portfolio--and also different expected risk characteristics.calcada wrote: ↑Fri May 21, 2021 12:27 amI am comfortable with my target AA of 60% stocks. I am hesitating on what to do with the 40% cash and whether I should put it in bonds. I struggle to see any upside and benefit to bonds in the future.Marseille07 wrote: ↑Fri May 21, 2021 12:20 am If your target is really 60/40 VT/BNDW then you should move toward that target, it's simple as that.
But before doing so, you should reconsider if that target makes sense, as you seem to have a lot of hesitation. Your target AA has to be something you feel comfortable sticking with, regardless of market conditions.
So if you liked the expected return/risk characteristics of the 60:40 VT:BNDW portfolio, you are not getting that with your current portfolio.
Now, if you no longer like the expected risk characteristics of a 60:40 VT:BNDW portfolio and would prefer to use cash, you could restore a similar expected return by increasing the VT percentage. I haven't bothered to do the math, but maybe something like a 70:30 VT:cash portfolio.
However, if you insist on keeping your VT at 60% while not carrying out your plan to hold the remaining 40% in BNDW, you are violating your original plan's long-term expected return goal due to concerns about short-term risk.
And as a general rule, that sort of thinking is very dangerous. Not to go off on a tangent, but I would classify that as a likely example of what is know in the academic literature as myopic loss aversion, and MLA has been shown to be very harmful to investors, in just this way--it leads to people taking less short-term risk for long-term expected returns than would be optimal for them in the long run.
Re: Bonds in free fall
The solution to historically low bond yields is to save more and work longer. Do not skimp on safe bonds!
Re: Bonds in free fall
I have 1.7M portfolio. My goal is to keep 100K cash for emergency, and from the rest, invest 75% in stocks & 25% in bonds.
At present, my cash reserves are at 180K, and the bonds are 80K less than their target value. Should I transfer my extra 80K cash to bonds, or let it be?
At present, my cash reserves are at 180K, and the bonds are 80K less than their target value. Should I transfer my extra 80K cash to bonds, or let it be?
Re: Bonds in free fall
Thank you. TIPS and I Bonds are safe bonds too! But anyway, one has to look at the whole portfolio, not just one piece in isolation. Sure if you look at the expected real return of safe nominal bonds they do not look attractive. But I am worried people are ditching them to add more risk assets and end up taking more risk than they should! For example, some people replace safe bonds with "blue chip" dividend paying stocks or junk or emerging market bonds to reach for yield without realizing the risk they are taking. A Boglehead might ditch his safe bonds for more total stock market index fund. Yields are historically low but stock valuations are historically high. Don't ditch the safe bonds and look at your portfolio as a whole, not just 1 piece in isolation!
- willthrill81
- Posts: 32250
- Joined: Thu Jan 26, 2017 2:17 pm
- Location: USA
- Contact:
Re: Bonds in free fall
Especially when vehicles that are explicitly shielded from inflation are readily available.
The Sensible Steward
Re: Bonds in free fall
I mostly agree.SafeBonds wrote: ↑Sat May 22, 2021 9:33 pm Thank you. TIPS and I Bonds are safe bonds too! But anyway, one has to look at the whole portfolio, not just one piece in isolation. Sure if you look at the expected real return of safe nominal bonds they do not look attractive. But I am worried people are ditching them to add more risk assets and end up taking more risk than they should! For example, some people replace safe bonds with "blue chip" dividend paying stocks or junk or emerging market bonds to reach for yield without realizing the risk they are taking. A Boglehead might ditch his safe bonds for more total stock market index fund. Yields are historically low but stock valuations are historically high. Don't ditch the safe bonds and look at your portfolio as a whole, not just 1 piece in isolation!
The flip side though is to consider how much one is paying for the safety - too much safety is another kind of risk. Many participants in the bond market either have to buy bonds or are buying them to match nominal liabilities, so the bond market may thus not be attractively pricing bonds for an individual investor.
Re: Bonds in free fall
I think you should decide if you want to be a market timer or not. If not, there is no reason to wait to get to the desired ultimate portfolio. Personally I am market timing right now and keeping cash instead of buying more bonds.gurusw wrote: ↑Sat May 22, 2021 8:51 pm I have 1.7M portfolio. My goal is to keep 100K cash for emergency, and from the rest, invest 75% in stocks & 25% in bonds.
At present, my cash reserves are at 180K, and the bonds are 80K less than their target value. Should I transfer my extra 80K cash to bonds, or let it be?
Re: Bonds in free fall
What are you planning to do with that cash? Buy bonds later, or buy stocks if they go down?
Re: Bonds in free fall
Buy whatever looks most attractive whenever there are attractive enough investments to justify a smaller cash allocation. Probably stocks.
I don't see myself buying bonds again until Treasuries are yielding double digits.
Re: Bonds in free fall
When was the last time that Treasuries yielded double digits? Was that in the early 1980s?
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
- willthrill81
- Posts: 32250
- Joined: Thu Jan 26, 2017 2:17 pm
- Location: USA
- Contact:
Re: Bonds in free fall
If I could buy TIPS yielding at least 3% real, I'd definitely buy some. But that's far in the rearview mirror, and I don't see such yields on the forward horizon either.
The Sensible Steward
Re: Bonds in free fall
It's certainly possible but I am trying to move towards bond-indifferent investing. Stocks and bonds seem to me like the same trade (obviously the magnitudes are different) as long as we're in the "declining rates" paradigm.willthrill81 wrote: ↑Sun May 23, 2021 6:34 pm If I could buy TIPS yielding at least 3% real, I'd definitely buy some. But that's far in the rearview mirror, and I don't see such yields on the forward horizon either.
Re: Bonds in free fall
I'm watching if today will turn out to be the start of the melt-up phase in everything.
Large tech is leading, bonds up, commodities turning up too. I expect emergent tech, small and value to take a backseat. PMs are up for the day too but their short term cycle is mature. Bond yields should come down with the "inflation will be transitory" narrative to support stocks.
The melt-up is far from a given: put-call ratio and sentiment are supportive, but breadth in Naz has been concerning since the start of the year.
Market timer targeting long term cycles -- aiming for several key decisions per asset class per decade
Re: Bonds in free fall
My sell order for another 1/3 of TMF below $26 just went thru, but overall I'm not too impressed with how long bonds are off-setting stocks recently. Just further confirmation that when rates are low, despite convexity, bonds are losing their hedging power. That said, I'm holding my final 1/3 of TMF just for a while longer in case stocks decline further next week. Even the most minute acknowledgement from the Fed on inflation seems to be taken as a positive.NoRegret wrote: ↑Thu May 20, 2021 7:16 pmYes, May 6 turned out to be a local top (in bond price) before the big NFP miss and a small correction. My price objective when entering this trade was just below $26 so bond price needs to make a run from here.000 wrote: ↑Thu May 20, 2021 6:58 pmNice. Still in the rest of your TMF?NoRegret wrote: ↑Fri May 07, 2021 1:57 am Taking profit on 1/3 of my TMF position here. Looking back my two entries were a day or two either side of the March bottom. We’ll see if long bonds have enough technical strength to run further. TIP/SCHP are now positive for the year.
There has been pronounced negative serial daily correlation (up day, down day) in almost every market, at some point strong trends should emerge.
This is a tiny part of my portfolio that I really shouldn’t be spending much time on. Far more critical is whether there will be a rotation out of commodities/value and into FANG and an index melt-up.
The rotation from commodities to tech seems to be starting.
Market timer targeting long term cycles -- aiming for several key decisions per asset class per decade
Re: Bonds in free fall
So there was a gap in the 10-yr rate ($TNX) around 1.2%, corresponding to $149 on TLT and $29 on TMF that I had been eyeing, but I ended up exiting the rest of my TMF anyway. It was intended as a hedge to IVOL and served that purpose very well. Currently, I have no view on where rates will be near term so the default response is to reduce volatility exposure.NoRegret wrote: ↑Thu Jun 17, 2021 10:47 am My sell order for another 1/3 of TMF below $26 just went thru, but overall I'm not too impressed with how long bonds are off-setting stocks recently. Just further confirmation that when rates are low, despite convexity, bonds are losing their hedging power. That said, I'm holding my final 1/3 of TMF just for a while longer in case stocks decline further next week. Even the most minute acknowledgement from the Fed on inflation seems to be taken as a positive.
The rotation from commodities to tech seems to be starting.
Over the next several years, I still lean towards inflation while fully acknowledging some of the current high readings are due to supply constrains and base effects. I also sympathize with the view that debt is fundamentally deflationary and QE ended up clogging the financial system and not getting into the real economy. However on balance, I still give the nod to fiscal stimulus and cost-push inflation. That means I see gradual inflation, albeit with ROC slowing down in the coming quarters, and requiring continued fiscal policy to sustain that view.
Market timer targeting long term cycles -- aiming for several key decisions per asset class per decade
Re: Bonds in free fall
Fed minutes day. This was the proverbial 2nd shoe to drop. Today's low in 10y rate was 1.296% -- first time below 1.3% since mid February. The high in TLT was $148.56 and in TMF $28.96.
The inflation narrative has gone a full circle from "omg it's finally here" to "it's transitory". Most of the bond price movements lately have more to do with positioning than the market trying to price interest rates. The danger now leans toward headline surprises to the upside and for longer. It wouldn't surprise me to have another run towards 2%.
Took a stab at TBF today.
Market timer targeting long term cycles -- aiming for several key decisions per asset class per decade
-
- Posts: 8626
- Joined: Wed Apr 08, 2015 11:31 am
- Location: West coast of Florida, near Champa Bay !
Re: Bonds in free fall
For this moment in time, my Long-term Treasury (VLGSX) and my Extended Duration Treasuries (EDV) are both outpacing my equity funds in percentage of increase in price for this session.
Lots of green today, my favorite color. My only red holding is down a whopping $100 total on 1000 shares.
I'm going outside to smoke a good cigar and see what kind of yard cleanup DW and a grandson have done. There was some small branches and tree debris to clean up.
We were lucky that Elsa just gave us some high winds and some rain. First dodge of a hurricane this year. We are up 1-0.
Unless there is a swoon in the next 10 minutes or so, we might have another ATH.
Broken Man 1999
Lots of green today, my favorite color. My only red holding is down a whopping $100 total on 1000 shares.
I'm going outside to smoke a good cigar and see what kind of yard cleanup DW and a grandson have done. There was some small branches and tree debris to clean up.
We were lucky that Elsa just gave us some high winds and some rain. First dodge of a hurricane this year. We are up 1-0.
Unless there is a swoon in the next 10 minutes or so, we might have another ATH.
Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go." - Mark Twain
-
- Posts: 3944
- Joined: Fri Dec 20, 2019 2:49 am
- Location: Upstate NY
Re: Bonds in free fall
Bonds are coming back these last few months - lol
-
- Posts: 8626
- Joined: Wed Apr 08, 2015 11:31 am
- Location: West coast of Florida, near Champa Bay !
Re: Bonds in free fall
Bond holdings are my only holdings in green today.
I'll take more of this "free fall."
Broken Man 1999
I'll take more of this "free fall."
Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go." - Mark Twain
Re: Bonds in free fall
Bond yields have been pretty wild since my last post, 10-yr got as low as 1.13% and closed at 1.34% today. We've also had the obligatory hedge fund blow-up shorting bonds story.NoRegret wrote: ↑Wed Jul 07, 2021 2:23 pmFed minutes day. This was the proverbial 2nd shoe to drop. Today's low in 10y rate was 1.296% -- first time below 1.3% since mid February. The high in TLT was $148.56 and in TMF $28.96.
The inflation narrative has gone a full circle from "omg it's finally here" to "it's transitory". Most of the bond price movements lately have more to do with positioning than the market trying to price interest rates. The danger now leans toward headline surprises to the upside and for longer. It wouldn't surprise me to have another run towards 2%.
Took a stab at TBF today.
"Transitory" is now defined as "not persistent". The July CPI reading is tomorrow, I won't be surprised if it surprises on the upside. Even if the inflation rate-of-change slows down, the absolute level can remain high since labor costs are sticky and owner's equivalent rent will likely start to pick up.
I'm expecting the 10-yr to make a run at 2% or above from here. Stocks, esp large growth probably will be able to shake it off until about the previous high of 1.75%.
TBF is the 1x inverse of TLT so there was little decay (showing a small gain as a matter of fact). I'm just about ready to switch to the 2x inverse, TBT.
Edit: TBT is -2x, TMV is -3x
Last edited by NoRegret on Wed Aug 11, 2021 8:40 am, edited 1 time in total.
Market timer targeting long term cycles -- aiming for several key decisions per asset class per decade