Bonds are safe if you buy actual bonds and hold to maturity. If you buy nominal, you know exactly what you get in interest. If you buy TIPS, you know exactly how you stand against inflation. Bond funds are another story. But I do think they make sense for international bonds.willthrill81 wrote: ↑Fri Jan 21, 2022 4:48 pmIt reminds me of Einstein's quote that "Everything should be made as simple as possible but not simpler."canadianbacon wrote: ↑Fri Jan 21, 2022 4:42 pmI know you know this, but I think it just means it's too simple to say "bonds are safe" is either right or wrong; it depends on the context in which it's being written IMO.
There are many here who I'm sure have the best of intentions toward making personal finance as accessible to the general public as possible, and that's needful. But oversimplifying matters by saying things like 'bonds are safe' is a bridge too far.
Bonds: What Are They Doing? Are They Doing Things?? Let's Find Out!
Re: Bonds in free fall
Re: Bonds in free fall
I don't agree.Beensabu wrote: ↑Wed Jan 19, 2022 11:54 pmNot much, as long as you hold the bond fund for a little longer than its average stated duration. People just get weird about the interim NAV changes, because they can see it on a chart and it makes them feel funny. Same thing happens with individual bonds, but you're not constantly marking them to market to see what they're worth right now (at least I hope nobody does that, that sounds terrible).km91 wrote: ↑Wed Jan 19, 2022 11:31 pmWhat's the difference between holding the actual bonds for 20 years and holding a long duration bond fund for the same amount of time?
If you buy and hold an individual bond for 20 years, you get interest periodically and principal back at the end of 20 years (ignoring default scenario).
There are no funds available to mimic this exactly. If you buy EDV today, there is no way of telling what your return will be 20 years from now.
Re: Bonds in free fall
iBonds and BulletShares are defined maturity funds (though someone noted some of the underlying holdings in the BulletShares junk fund had risk of not being called before fund maturity).Hector wrote: ↑Fri Jan 21, 2022 7:11 pm I don't agree.
If you buy and hold an individual bond for 20 years, you get interest periodically and principal back at the end of 20 years (ignoring default scenario).
There are no funds available to mimic this exactly. If you buy EDV today, there is no way of telling what your return will be 20 years from now.
Re: Bonds in free fall
You are correct. You cannot know exactly what your return with a bond fund would be in exactly that amount of time in the way you can with individual bonds. You can know approximately, though. And yes, you may have to hold the bond fund a little longer (or even not as long, though that's less likely currently). It just depends on whether that's good enough for you or not. It's probably not if you're liability matching. But if you want a LTT allocation that you're maintaining at a certain % of portfolio, then a bond fund is fine.Hector wrote: ↑Fri Jan 21, 2022 7:11 pmI don't agree.Beensabu wrote: ↑Wed Jan 19, 2022 11:54 pmNot much, as long as you hold the bond fund for a little longer than its average stated duration. People just get weird about the interim NAV changes, because they can see it on a chart and it makes them feel funny. Same thing happens with individual bonds, but you're not constantly marking them to market to see what they're worth right now (at least I hope nobody does that, that sounds terrible).
If you buy and hold an individual bond for 20 years, you get interest periodically and principal back at the end of 20 years (ignoring default scenario).
There are no funds available to mimic this exactly. If you buy EDV today, there is no way of telling what your return will be 20 years from now.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
Re: Bonds in free fall
Hmm it seems like the "ride" of the interest payments will be similar (but not exactly the same), but the real difference comes after 20 years, when it's time to get off the train. The individual bond holder knows they will receive their principal. But the bond fund holder must sell their fund's basket of bonds that have an average duration of 20 years. Instead of getting back their principal, they will get whatever the market happens to be paying for a collection of bonds with an average duration of 20 years that was purchased by the fund over a number of years, at various rates.Beensabu wrote: ↑Fri Jan 21, 2022 8:59 pmYou are correct. You cannot know exactly what your return with a bond fund would be in exactly that amount of time in the way you can with individual bonds. You can know approximately, though. And yes, you may have to hold the bond fund a little longer (or even not as long, though that's less likely currently). It just depends on whether that's good enough for you or not. It's probably not if you're liability matching. But if you want a LTT allocation that you're maintaining at a certain % of portfolio, then a bond fund is fine.Hector wrote: ↑Fri Jan 21, 2022 7:11 pmI don't agree.Beensabu wrote: ↑Wed Jan 19, 2022 11:54 pmNot much, as long as you hold the bond fund for a little longer than its average stated duration. People just get weird about the interim NAV changes, because they can see it on a chart and it makes them feel funny. Same thing happens with individual bonds, but you're not constantly marking them to market to see what they're worth right now (at least I hope nobody does that, that sounds terrible).
If you buy and hold an individual bond for 20 years, you get interest periodically and principal back at the end of 20 years (ignoring default scenario).
There are no funds available to mimic this exactly. If you buy EDV today, there is no way of telling what your return will be 20 years from now.
The bond fund holder is thus exposed to interest rate risk when it comes time to sell. This risk can be eliminated by instead holding individual bonds that are duration matched to a future liability.
Withdrawal Phase Plan: Equities <= 50% | TIPS, I Bonds | VPW Worksheet | TPAW | Social Security @70
Re: Bonds in free fall
One is not supposed to be holding a bond fund with a specific date on which everything is going to be sold. For that a person holds a single bond. Most investors are discussing portfolios of stocks and bonds that are held indefinitely and used to support small withdrawals continuously for an indefinite time. Or they are holding bonds as part of designing the risk and return of a portfolio to both accumulate and disaccumulate welath over many decades (40-80 years or more). If there is a specific plan to liquidate a large fraction of the assets at a time, then one needs to make investments suitable to that plan. One (in)famous example that actually combines both is that of holding a ladder of individual TIPS, one of which (ideally) matures in each year to be the income for that year. That becomes an inflation risk/term risk/credit risk free source of income for as long as you can make the ladder, max 30 years. It is not necessarily the best way to use a portfolio for income, however.Zardoz wrote: ↑Fri Jan 21, 2022 10:33 pmHmm it seems like the "ride" of the interest payments will be similar (but not exactly the same), but the real difference comes after 20 years, when it's time to get off the train. The individual bond holder knows they will receive their principal. But the bond fund holder must sell their fund's basket of bonds that have an average duration of 20 years. Instead of getting back their principal, they will get whatever the market happens to be paying for a collection of bonds with an average duration of 20 years that was purchased by the fund over a number of years, at various rates.Beensabu wrote: ↑Fri Jan 21, 2022 8:59 pmYou are correct. You cannot know exactly what your return with a bond fund would be in exactly that amount of time in the way you can with individual bonds. You can know approximately, though. And yes, you may have to hold the bond fund a little longer (or even not as long, though that's less likely currently). It just depends on whether that's good enough for you or not. It's probably not if you're liability matching. But if you want a LTT allocation that you're maintaining at a certain % of portfolio, then a bond fund is fine.Hector wrote: ↑Fri Jan 21, 2022 7:11 pmI don't agree.Beensabu wrote: ↑Wed Jan 19, 2022 11:54 pmNot much, as long as you hold the bond fund for a little longer than its average stated duration. People just get weird about the interim NAV changes, because they can see it on a chart and it makes them feel funny. Same thing happens with individual bonds, but you're not constantly marking them to market to see what they're worth right now (at least I hope nobody does that, that sounds terrible).
If you buy and hold an individual bond for 20 years, you get interest periodically and principal back at the end of 20 years (ignoring default scenario).
There are no funds available to mimic this exactly. If you buy EDV today, there is no way of telling what your return will be 20 years from now.
The bond fund holder is thus exposed to interest rate risk when it comes time to sell. This risk can be eliminated by instead holding individual bonds that are duration matched to a future liability.
It isn't that hard for investors to understand how bonds work and fit the investment to the objective.
Re: Bonds in free fall
This risk can also be managed by gradually shifting the bond allocation from a long-duration fund to a short-duration fund as the investment horizon grows shorter. This is discussed in the thread A bond duration glide path for retirement investing
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
Re: Bonds in free fall
Exactly. But people who are struggling with how a fund and a bond are different aren't going to manage that.vineviz wrote: ↑Sat Jan 22, 2022 10:07 amThis risk can also be managed by gradually shifting the bond allocation from a long-duration fund to a short-duration fund as the investment horizon grows shorter. This is discussed in the thread A bond duration glide path for retirement investing
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Re: Bonds in free fall
Hi Vince -vineviz wrote: ↑Sat Jan 22, 2022 10:07 amThis risk can also be managed by gradually shifting the bond allocation from a long-duration fund to a short-duration fund as the investment horizon grows shorter. This is discussed in the thread A bond duration glide path for retirement investing
This makes a lot of sense to tighten the duration during these challenging times of higher inflation and interest rates. What are your thoughts on articles starting to appear again regarding real estate as “bond like” because of the cash flow stream of rent. Rent that should adjust in an inflationary environment.
I previously sent you a note (hope you received it) regarding Fundrise (and one could add Vanguard REIT - VNQ) to the discussion. Are you familiar with crowdfunding real estate and platforms such as Fundrise that allow one to invest directly in real estate but are less liquid than publicly traded securities?
Would this be an alternative strategy?
Thanks.
Tony
John C. Bogle: “Simplicity is the master key to financial success."
Re: Bonds in free fall
Yes. They are maturity funds, but don't act exactly like individual bonds when you compare with buying individual bonds and holding till maturity.000 wrote: ↑Fri Jan 21, 2022 7:49 pmiBonds and BulletShares are defined maturity funds (though someone noted some of the underlying holdings in the BulletShares junk fund had risk of not being called before fund maturity).Hector wrote: ↑Fri Jan 21, 2022 7:11 pm I don't agree.
If you buy and hold an individual bond for 20 years, you get interest periodically and principal back at the end of 20 years (ignoring default scenario).
There are no funds available to mimic this exactly. If you buy EDV today, there is no way of telling what your return will be 20 years from now.
When investors buy/sell those funds, fund manager need to buy/sell underlying individual bonds.
If you buy iShares® iBonds® Dec 2031 Term Treasury ETF; IBTL today and hold till maturity, it does not guarantee you to get ~1.75% return (adjust for expense ratio), which you will get if you buy individual treasury and hold till it matures on 11/15/2031.
Re: Bonds in free fall
Hector wrote: ↑Sat Jan 22, 2022 2:02 pm Yes. They are maturity funds, but don't act exactly like individual bonds when you compare with buying individual bonds and holding till maturity.
When investors buy/sell those funds, fund manager need to buy/sell underlying individual bonds.
If you buy iShares® iBonds® Dec 2031 Term Treasury ETF; IBTL today and hold till maturity, it does not guarantee you to get ~1.75% return (adjust for expense ratio), which you will get if you buy individual treasury and hold till it matures on 11/15/2031.
In fact these funds act very much like individual bonds do. Purchases and redemptions in the fund don’t change the composition of the fund or affect the yield to maturity.
There are only two factors which will cause the realized return to diverge from the starting YTM.
One is that income must be reinvested and the future yields at which that must happen are uncertain. This is also true with individual bonds except for zero coupon bonds. The current YTM is calculated on the current holdings and cannot account for this effect. Total return can be slightly higher or lower that starting YTM as a result.
The bottom line is that defined maturity ETFs play exactly the same role in a portfolio as individual bonds. This is why they exist.
The second is that the ETF owns bonds which mature throughout the terminal year (eg 2031). Proceeds from bonds which mature early in the year will be invested in short-term Treasuries until the fund liquidates in December
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
Re: Bonds in free fall
Wait, you want to combine both mega-threads? What is this, a crossover episode?
Withdrawal Phase Plan: Equities <= 50% | TIPS, I Bonds | VPW Worksheet | TPAW | Social Security @70
Re: Bonds in free fall
Let's keep them separate. Also, not to create any more "free fall / soaring" threads.
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Re: Bonds in free fall
wondering what I should do with my bonds, they're about 10% of my taxable portfolio and it's painful to realize that it's dead money and also has duration risk (VBILX duration is around 6 years).
On one hand I don't want to buy equities as I would like to keep 10% in some type of risk free asset, but on the other hand there is no asset like that to keep up with inflation at least and without any term risk.
I am thinking if we have a very deep pullback, say 20%, then I may consider rolling it over to equities.
Bond funds right now are worse than cash due to the duration risk unless rates are going to go down if the market collapses.
On one hand I don't want to buy equities as I would like to keep 10% in some type of risk free asset, but on the other hand there is no asset like that to keep up with inflation at least and without any term risk.
I am thinking if we have a very deep pullback, say 20%, then I may consider rolling it over to equities.
Bond funds right now are worse than cash due to the duration risk unless rates are going to go down if the market collapses.
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Re: Bonds in free fall
Pick one. Safety from stock market crashes or expected real returns.stocknoob4111 wrote: ↑Sun Jan 23, 2022 12:46 pm wondering what I should do with my bonds, they're about 10% of my taxable portfolio and it's painful to realize that it's dead money and also has duration risk (VBILX duration is around 6 years).
On one hand I don't want to buy equities as I would like to keep 10% in some type of risk free asset, but on the other hand there is no asset like that to keep up with inflation at least and without any term risk.
I am thinking if we have a very deep pullback, say 20%, then I may consider rolling it over to equities.
Bond funds right now are worse than cash due to the duration risk unless rates are going to go down if the market collapses.
Or buy I Bonds and guarantee at least 0% real return.
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Re: Bonds in free fall
Yep, I will be buying the $10K limit soon... it's not much but at least something.Triple digit golfer wrote: ↑Sun Jan 23, 2022 12:52 pm Or buy I Bonds and guarantee at least 0% real return.
Re: Bonds in free fall
Holding bonds waiting on that 30% correction so I can rebalance into equities. Isn’t that the plan?
Inflation is painful… but cash is worse. I see a lot of talking down bonds, but I’m unaware of the inflation hedge that works in taxable at all. I’d love something better just like everyone else… just don’t know what it is.
(Full disclosure, I haven’t been reinvesting into bonds. I have a bunch of cash waiting for the rate hikes… just can’t resist that entry timing pull.)
Inflation is painful… but cash is worse. I see a lot of talking down bonds, but I’m unaware of the inflation hedge that works in taxable at all. I’d love something better just like everyone else… just don’t know what it is.
(Full disclosure, I haven’t been reinvesting into bonds. I have a bunch of cash waiting for the rate hikes… just can’t resist that entry timing pull.)
(To color my comments: my situation is ER trying to make a large portfolio that is 99% taxable last 45 years)
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Re: Bonds in free fall
Yep...not a lot of good options, but little cost to letting cash sit vs bonds...at least for a bit (until they start paying more or better options arise).longview wrote: ↑Wed Jan 26, 2022 7:10 am Holding bonds waiting on that 30% correction so I can rebalance into equities. Isn’t that the plan?
Inflation is painful… but cash is worse. I see a lot of talking down bonds, but I’m unaware of the inflation hedge that works in taxable at all. I’d love something better just like everyone else… just don’t know what it is.
(Full disclosure, I haven’t been reinvesting into bonds. I have a bunch of cash waiting for the rate hikes… just can’t resist that entry timing pull.)
Might have to finally go down the I-bonds route, but I have a real aversion to opening yet another account and adding more complexity to my portfolio (but would have to do something similar with the other alternatives for fixed, e.g. HYSA or CD's). I'll probably do more of nothing for a while...
Re: Bonds in free fall
livesoft Bond Buying signal today again?
Dave
"Reality always wins, your only job is to get in touch with it." Wilfred Bion
Re: Bonds in free fall
I don't usually pay attention to BND but dang. 6% from the peak. That actually hurts a bit!
I guess I shouldn't be surprised, SEC yield is going up multiple basis points a day.
I guess I shouldn't be surprised, SEC yield is going up multiple basis points a day.
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Re: Bonds in free fall
I believe that $89.46 was the peak for BND back on July 31st, 2020. The current price of $82.09 is 8.2% off that high.
The Sensible Steward
Re: Bonds in free fall
Below $80 it would be pretty attractive, that's roughly the NAV range back when interest rates were more reasonable.willthrill81 wrote: ↑Fri Feb 04, 2022 9:29 amI believe that $89.46 was the peak for BND back on July 31st, 2020. The current price of $82.09 is 8.2% off that high.
70% Global Stocks / 30% Bonds
Re: Bonds in free fall
VGLT (LTT) is NOT at a 52 week low (or that close), while VGIT (ITT), VGSH (STT), GOVT (treasuries), and BND.willthrill81 wrote: ↑Fri Feb 04, 2022 9:29 amI believe that $89.46 was the peak for BND back on July 31st, 2020. The current price of $82.09 is 8.2% off that high.
"Owning the stock market over the long term is a winner's game. Attempting to beat the market is a loser's game. ..Don't look for the needle in the haystack. Just buy the haystack." Jack Bogle
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Re: Bonds in free fall
Saw mention of "the beginning of a significant taper tantrum in Europe right now" in my Twitter feed this morning. Twitter link
Me? I'm deploying dry powder into the TIPS tantrum, like scattering baby powder on a crying infant.
Me? I'm deploying dry powder into the TIPS tantrum, like scattering baby powder on a crying infant.
Re: Bonds in free fall
Since we love to talk about things being "priced in", what's the speculation on why the 10-year yield is up so much? My guess is that the big jobs number is now making some people think that inflation will continue, and therefore the Fed could raise by 50 bps instead of 25 next month. So, that possibility is being priced in. It's interesting because if that doesn't happen, the yield could drop. And we all know that the jobs numbers are revised all the time.
No idea, of course, but the past few weeks have been really good examples of how market mentality changes from day to day. It's just that the moves seems to be bigger and faster.
No idea, of course, but the past few weeks have been really good examples of how market mentality changes from day to day. It's just that the moves seems to be bigger and faster.
Re: Bonds in free fall
My guess would be that the probability of a 6th hike (in early 2023) hit 50 percent today.
"Owning the stock market over the long term is a winner's game. Attempting to beat the market is a loser's game. ..Don't look for the needle in the haystack. Just buy the haystack." Jack Bogle
Re: Bonds in free fall
Yes. But where would I get the money? Yesterday I sold VCSH to buy VTI. Today so far VCSH is down more than VTI, so that has not been disastrous. If VTI had popped today, then I probably would've sold those VTI shares to buy back some bond fund shares. Could still happen.
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Re: Bonds in free fall
My interpretation is that if jobs isn't a problem, it allows the Fed to get more hawkish to tackle inflation. If jobs became a problem, that might pull them back in a more dovish direction.Tom_T wrote: ↑Fri Feb 04, 2022 10:14 am Since we love to talk about things being "priced in", what's the speculation on why the 10-year yield is up so much? My guess is that the big jobs number is now making some people think that inflation will continue, and therefore the Fed could raise by 50 bps instead of 25 next month. So, that possibility is being priced in. It's interesting because if that doesn't happen, the yield could drop. And we all know that the jobs numbers are revised all the time.
No idea, of course, but the past few weeks have been really good examples of how market mentality changes from day to day. It's just that the moves seems to be bigger and faster.
Imagine if we have a recession--stagflation--and jobs become a problem, might not the Fed say, "You know what? We're all just gonna have to live with 7% inflation for a few years, while we keep rates low to support the job market." Cash and nominal bonds could have several years of, oh, I don't know, -5% real yield? It's possible, no?
Re: Bonds in free fall
Reading your post. I laughed at first. 7 percent inflation, come on ...?Robot Monster wrote: ↑Fri Feb 04, 2022 10:42 am My interpretation is that if jobs isn't a problem, it allows the Fed to get more hawkish to tackle inflation. If jobs became a problem, that might pull them back in a more dovish direction.
Imagine if we have a recession--stagflation--and jobs become a problem, might not the Fed say, "You know what? We're all just gonna have to live with 7% inflation for a few years, while we keep rates low to support the job market." Cash and nominal bonds could have several years of, oh, I don't know, -5% real yield? It's possible, no?
Then thought "OK - possible", anything is possible.
Then thought "probable" (with the condition of bad employment numbers). YIKES!
It happened in the pre-Volcker era.
"Owning the stock market over the long term is a winner's game. Attempting to beat the market is a loser's game. ..Don't look for the needle in the haystack. Just buy the haystack." Jack Bogle
Re: Bonds in free fall
I don't think so, because Fed can't control all rates in the marketplace even if it wanted to. The bond market will react to inflation as it sees fit, Fed or no Fed.Robot Monster wrote: ↑Fri Feb 04, 2022 10:42 am Imagine if we have a recession--stagflation--and jobs become a problem, might not the Fed say, "You know what? We're all just gonna have to live with 7% inflation for a few years, while we keep rates low to support the job market." Cash and nominal bonds could have several years of, oh, I don't know, -5% real yield? It's possible, no?
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Re: Bonds in free fall
There are admittedly limits to what the Fed can do, but the Fed is currently suppressing rates all along the curve, aren't they, by being such a huge buyer of bonds? For instance, I've read the Fed owns 25% of TIPS. (See Twitter link for charts and more info.) How can the bond market react to inflation as it sees fit if there is a price insensitive buyer of bonds of such humongous magnitude?Tom_T wrote: ↑Fri Feb 04, 2022 11:54 amI don't think so, because Fed can't control all rates in the marketplace even if it wanted to. The bond market will react to inflation as it sees fit, Fed or no Fed.Robot Monster wrote: ↑Fri Feb 04, 2022 10:42 am Imagine if we have a recession--stagflation--and jobs become a problem, might not the Fed say, "You know what? We're all just gonna have to live with 7% inflation for a few years, while we keep rates low to support the job market." Cash and nominal bonds could have several years of, oh, I don't know, -5% real yield? It's possible, no?
Re: Bonds in free fall
Found some money, plus both BND and VCSH paid their monthly divided this morning, so it's all good:
Plus VTI cooperated, too. Life is good ... and soft.
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Re: Bonds in free fall
What is the buy signal for VAIPX, out of curiosity? I've been nibbling at it as it's gone down from my 7% dry powder allocation.
Re: Bonds in free fall
Sorry, I don't have an opinion on that. And it doesn't trade intraday nor have an ETF share class that trades intraday. It probably has those annoying frequent trading things, too.Robot Monster wrote: ↑Fri Feb 04, 2022 12:26 pmWhat is the buy signal for VAIPX, out of curiosity? I've been nibbling at it as it's gone down from my 7% dry powder allocation.
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Re: Bonds in free fall
An interesting Twitter thread addressing what's going on in fixed income. Twitter link
Bonds continue to soar!
[Thread merged into here --admin LadyGeek]
well, why not....
We have:
Stocks soaring!
Stocks in free fall
Bonds in free fall
Therefore we might as well have Bonds soaring. At least when it happen's now, there's a nice place to post it ...
BTW - my VFIDX and FIPDX were both down today, but don't tell anybody!
well, why not....
We have:
Stocks soaring!
Stocks in free fall
Bonds in free fall
Therefore we might as well have Bonds soaring. At least when it happen's now, there's a nice place to post it ...
BTW - my VFIDX and FIPDX were both down today, but don't tell anybody!
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Re: Bonds continue to soar!
Bonds have had two bad days in a row, but nothing serious. I am utterly astounded by certain members of this forum who were trashing BND in other threads because it had a bad day yesterday.
Re: Bonds continue to soar!
yeah, bonds seem to be the Rodney Dangerfield asset around here sometimes. That's fine, cause I'd bet the vast majority of people have them, especially those approaching retirement or in retirement. They just don't get any respect....lol
Re: Bonds continue to soar!
If you have an instrument yielding less than 2% when inflation is 7% they aren’t going to get a lot of love.
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Re: Bonds continue to soar!
Do you want bonds to soar? I realize watching your fund lose value is no fun. My TIPS fund, VAIPX, has had a very unfun -2.92% YTM. It went down -0.54% today, and something similar yesterday. Unpleasant. But, in actuality, these bad days are good days--for me, at least. Because I plan on holding my TIPS fund past its average duration, rising TIPS yields will be good for me in the long-run.
It's all about the big picture, which these type of threads are terrible for.
Big picture-->Nisiprius showed what would happen to VAIPX if interest rates rose:
It's all about the big picture, which these type of threads are terrible for.
Big picture-->Nisiprius showed what would happen to VAIPX if interest rates rose:
nisiprius wrote: ↑Thu Jun 10, 2021 8:49 am This assumes real interest rates rise from 0% to 2% over a period of two years. For this calculation I tweaked the bond maturities to get a slightly longer duration, 8 years, to roughly match the 7.4-year duration of the Vanguard VIPS fund, VAIPX.
This is not a greed-inspiring picture, but it's not terrifying. We are seeing a -13% drawdown...
Re: Bonds continue to soar!
Well, if you're in longer term bonds, you may not want bond returns like past periods of rising rates...
...and that's in nominal terms, you really don't want to see it in inflation adjusted terms
...and that's in nominal terms, you really don't want to see it in inflation adjusted terms
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
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Re: Bonds continue to soar!
Two bad days, how about two bad years lol. The thread title did make me chuckle though, well done….
Re: Bonds in free fall
I merged airshow's thread into the ongoing discussion. As noted earlier:
Next, bonds have to actually be on the increase to justify a new thread. Otherwise, it's off-topic from the intended discussion.
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Re: Bonds continue to soar!
Long bonds in a long period of rising rates is certainly the house of pain, but we don't know how long this period of tightening will last. I read that:
"Fed Funds are priced to peak in early 2024 at around 1.90%, and the Fed is priced to lean towards RATE CUTS after that - basically, forward rates are inverted already few years down the road!" (Click link to see accompanying graph.)
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Re: Bonds continue to soar!
Wow. LTT may indeed in a world of hurt in the coming years the likes of which they haven't seen since the late 70s.Robot Monster wrote: ↑Sat Feb 05, 2022 9:32 amLong bonds in a long period of rising rates is certainly the house of pain, but we don't know how long this period of tightening will last. I read that:
"Fed Funds are priced to peak in early 2024 at around 1.90%, and the Fed is priced to lean towards RATE CUTS after that - basically, forward rates are inverted already few years down the road!" (Click link to see accompanying graph.)
This makes me wonder whether my tiny allocation to a quasi-HFEA may need to be revisited.
The Sensible Steward
- TheTimeLord
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Re: Bonds continue to soar!
Long bond rates are not bound by the Fed Funds rate. Who knows, the "Bond Vigilantes" might return.Robot Monster wrote: ↑Sat Feb 05, 2022 9:32 amLong bonds in a long period of rising rates is certainly the house of pain, but we don't know how long this period of tightening will last. I read that:
"Fed Funds are priced to peak in early 2024 at around 1.90%, and the Fed is priced to lean towards RATE CUTS after that - basically, forward rates are inverted already few years down the road!" (Click link to see accompanying graph.)
IMHO, Investing should be about living the life you want, not avoiding the life you fear. |
Run, You Clever Boy! [9085]
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Re: Bonds continue to soar!
That's a good point, long bonds are not bound by the Fed Funds rate, and I suppose neither is the 10yr. The curve could flatten, invert, or steepen if the Fed Funds rate goes either up or down! I do have an awfully bad habit of thinking that Fed Funds rate going up must mean all bond yields rising, even though Nisiprius has posted several times that that isn't the case when people have questioned owning BND when Fed Funds rates are going to rise. I also remember reading this insight:TheTimeLord wrote: ↑Sat Feb 05, 2022 9:55 amLong bond rates are not bound by the Fed Funds rate. Who knows, the "Bond Vigilantes" might return.Robot Monster wrote: ↑Sat Feb 05, 2022 9:32 amLong bonds in a long period of rising rates is certainly the house of pain, but we don't know how long this period of tightening will last. I read that:
"Fed Funds are priced to peak in early 2024 at around 1.90%, and the Fed is priced to lean towards RATE CUTS after that - basically, forward rates are inverted already few years down the road!" (Click link to see accompanying graph.)
2022 Fixed Income Oulook by Schwab linkIt may be tempting to wait for the Fed to begin raising short-term rates to buy intermediate- or long-term bonds, but based on our research that may not be the best approach. In the past three cycles of Fed tightening, 10-year Treasury yields have fallen from interim peak levels in the six to 12 months prior to the initial rate hike.
Re: Bonds in free fall
Bond vigilantes.
It's been a long time since I heard that.
It's been a long time since I heard that.
"..the cavalry ain't comin' kid, you're on your own..."
- TheTimeLord
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Re: Bonds continue to soar!
Long bonds have morphed over the years, as I understand it now they are most often used as a stock market shock absorber or flight to safety trade vehicle by active managers. Also lately I have been hearing some people recommending them as a contrarian call since apparently there are lots of people who are shorting them (don't ask me how I never bothered to research it).Robot Monster wrote: ↑Sat Feb 05, 2022 10:49 amThat's a good point, long bonds are not bound by the Fed Funds rate, and I suppose neither is the 10yr. The curve could flatten, invert, or steepen if the Fed Funds rate goes either up or down! I do have an awfully bad habit of thinking that Fed Funds rate going up must mean all bond yields rising, even though Nisiprius has posted several times that that isn't the case when people have questioned owning BND when Fed Funds rates are going to rise. I also remember reading this insight:TheTimeLord wrote: ↑Sat Feb 05, 2022 9:55 amLong bond rates are not bound by the Fed Funds rate. Who knows, the "Bond Vigilantes" might return.Robot Monster wrote: ↑Sat Feb 05, 2022 9:32 amLong bonds in a long period of rising rates is certainly the house of pain, but we don't know how long this period of tightening will last. I read that:
"Fed Funds are priced to peak in early 2024 at around 1.90%, and the Fed is priced to lean towards RATE CUTS after that - basically, forward rates are inverted already few years down the road!" (Click link to see accompanying graph.)
2022 Fixed Income Oulook by Schwab linkIt may be tempting to wait for the Fed to begin raising short-term rates to buy intermediate- or long-term bonds, but based on our research that may not be the best approach. In the past three cycles of Fed tightening, 10-year Treasury yields have fallen from interim peak levels in the six to 12 months prior to the initial rate hike.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. |
Run, You Clever Boy! [9085]