Bonds: What Are They Doing? Are They Doing Things?? Let's Find Out!

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BlueEars
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Re: Bonds in free fall

Post by BlueEars »

Swedroe mentioned a long time ago that the 5 year real return for nominals was 2.3% for 1926 - 2010. So that could be a benchmark for TIPS purchases.

If I can get 5 year TIPS above 1.0% then I would buy some. Did that in October 2018 and I'm good with them until April 2023. I don't know if I did better or worse then the nominals since then because rates declined for some time. But right now they are comforting.
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Re: Bonds in free fall

Post by rockstar »

BlueEars wrote: Mon Jan 10, 2022 5:04 pm Swedroe mentioned a long time ago that the 5 year real return for nominals was 2.3% for 1926 - 2010. So that could be a benchmark for TIPS purchases.

If I can get 5 year TIPS above 1.0% then I would buy some. Did that in October 2018 and I'm good with them until April 2023. I don't know if I did better or worse then the nominals since then because rates declined for some time. But right now they are comforting.
Why go back to 1926? Let's say someone works for 20 years and retires for 20 years. If you only own bonds for the last twenty years, then your time frame is too long. Likewise, if you hold bonds for 40 years, your time frame is still too long.

According to Morningstar, BND returned nominally: 2.7% per year.

https://www.morningstar.com/etfs/xnas/bnd/performance

If you look at inflation over the same period, it's roughly 2%.

https://fred.stlouisfed.org/

So you ended up making about 0.7ish percent real.

BND returned -8% real last year. It's likely to return -6% real this year. That's lot of money for insurance for a stock drop. Folks should think about the cost they're paying for future stock drops.
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Re: Bonds in free fall

Post by Robot Monster »

rockstar wrote: Mon Jan 10, 2022 5:41 pm BND returned -8% real last year. It's likely to return -6% real this year. That's lot of money for insurance for a stock drop. Folks should think about the cost they're paying for future stock drops.
+1
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BlueEars
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Re: Bonds in free fall

Post by BlueEars »

Rockstar, I was talking about trying to figure out what a TIPS purchase goal might be. People now are talking about buying them below -1%. I am not sure how what you wrote refers to a good real return for buying TIPS.
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Re: Bonds in free fall

Post by Doc »

Robot Monster wrote: Mon Jan 10, 2022 4:58 pm
Doc wrote: Mon Jan 10, 2022 4:18 pm
Robot Monster wrote: Mon Jan 10, 2022 4:05 pm
Doc wrote: Mon Jan 10, 2022 3:50 pm
willthrill81 wrote: Mon Jan 10, 2022 3:47 pm

I'm not ignoring it. How any instrument behaved during the GFC shouldn't permanently alter one's investment strategy IMHO.
It doesn't alter my strategy at all. It's part of my strategy. IMEO :D
Am I missing something? Seems like TIPS would have provided a very nice rebalancing opportunity. Portfolio Visualizer link
Yeh, you're missing something. Comparing TIPs with a Total Bond portfolio is a non starter.
I just don't understand why rebalancing from Total Bond should be considered acceptable, but rebalancing from TIPS wouldn't, given the similarity of performance between the two in a 60/40 portfolio. Yes, TIPS did worse, but not so much worse you still wouldn't do very well rebalancing from it.
It is not a about TIPs vs. TBM. It about TIPs vs. nominal Treasuries. If you use TBM you have added corporates and MBS into the mix.

TIPs and nominal Treasuries have the same default risk - zero. Not the same default risk as corporates and mortgage backed.

If you are going to buy and hold forever and never rebalance in a stock market crash you have a whole different scenario. If I was not going to rebalance when the S&P tanked I would have another view of TIPs.

If you wanted your FI portfolio to look like TBM I would suggest that you break it up into it's three default risk parts so you can get the best result WHEN you rebalance if the S&P tanks. (Which it will do every several years.)
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Re: Bonds in free fall

Post by rockstar »

BlueEars wrote: Mon Jan 10, 2022 6:02 pm Rockstar, I was talking about trying to figure out what a TIPS purchase goal might be. People now are talking about buying them below -1%. I am not sure how what you wrote refers to a good real return for buying TIPS.
If you buy nominal right now, you're still negative. The only difference is that TIPS tell you upfront what you're negative real.
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Re: Bonds in free fall

Post by willthrill81 »

Robot Monster wrote: Mon Jan 10, 2022 5:44 pm
rockstar wrote: Mon Jan 10, 2022 5:41 pm BND returned -8% real last year. It's likely to return -6% real this year. That's lot of money for insurance for a stock drop. Folks should think about the cost they're paying for future stock drops.
+1
+2
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BlueEars
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Re: Bonds in free fall

Post by BlueEars »

rockstar wrote: Mon Jan 10, 2022 6:34 pm
BlueEars wrote: Mon Jan 10, 2022 6:02 pm Rockstar, I was talking about trying to figure out what a TIPS purchase goal might be. People now are talking about buying them below -1%. I am not sure how what you wrote refers to a good real return for buying TIPS.
If you buy nominal right now, you're still negative. The only difference is that TIPS tell you upfront what you're negative real.
I would add that that negative real yield will be for 5 years. I could bet on lots of inflation this year but no clue on the next 4 years.
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Re: Bonds in free fall

Post by rockstar »

BlueEars wrote: Mon Jan 10, 2022 7:00 pm
rockstar wrote: Mon Jan 10, 2022 6:34 pm
BlueEars wrote: Mon Jan 10, 2022 6:02 pm Rockstar, I was talking about trying to figure out what a TIPS purchase goal might be. People now are talking about buying them below -1%. I am not sure how what you wrote refers to a good real return for buying TIPS.
If you buy nominal right now, you're still negative. The only difference is that TIPS tell you upfront what you're negative real.
I would add that that negative real yield will be for 5 years. I could bet on lots of inflation this year but no clue on the next 4 years.
It's the same with nominal. You know what you'll make for the interest rate, but you have no clue what inflation will be. It's like algebra, but you have to pick the unknown quantity: inflation or interest rate. At the end of the day, you're guessing. Maybe you want to split that guess 50/50 between the two. There is no easy answer here. Inflation might return back to 2% in 2023. The 5 year nominal rate might go to 3% by 2023. Lots of unknowns in the bond market these days. However, if I can lock in a 2% real yield in TIPS, I think, I'd pull that trigger given BNDs last ten years of performance.
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BlueEars
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Re: Bonds in free fall

Post by BlueEars »

Out of curiosity I looked up buying 1 year TIPS. The yield is -3.2%.
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Re: Bonds in free fall

Post by rockstar »

BlueEars wrote: Mon Jan 10, 2022 7:13 pm Out of curiosity I looked up buying 1 year TIPS. The yield is -3.2%.
They don't offer 1 year TIPS at auction. You're buying on the secondary market. I looked at doing this through my broker, but the minimum purchase was more than I wanted to allocate.

Here's the schedule in case you're curious.

https://home.treasury.gov/system/files/ ... hedule.pdf
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Re: Bonds in free fall

Post by Starfox »

My stock dividends and annual selling of stock shares with long term capital gains keeps me every year in the top bracket and when accounting for NIIT, I'm at 40.8%. The state I live in has no income taxes.
My entire bond allocation is in tax-exempt municipal bond etf VTEB which has SEC yield of 0.96%, tax-equivalent yield (TEY) of 1.622%

I see today that taxable Total Bond etf BND has SEC yield of 1.63%.
I'm wondering if there is any benefit of selling half of my holdings in VTEB and buying BND, for diversification purposes. There isn't any capital gains selling VTEB, but not sure if it is worth the few minutes of effort doing the sell/buy.

Is there any reasons pro/con, going away from 100% tax-exempt bonds, to 50/50?
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Re: Bonds in free fall

Post by 000 »

I would diversify. That is the main pro. Munis are probably not as safe as treasuries especially if we continue to experience bond market volatility.
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Re: Bonds in free fall

Post by drk »

Starfox wrote: Mon Jan 10, 2022 7:39 pm I'm wondering if there is any benefit of selling half of my holdings in VTEB and buying BND, for diversification purposes.
What kind of diversification are you looking for? If you have a lot of money in stocks, maybe you don't want to add corporate bond risk, so a Treasury fund could be a better option. You'll lose some yield in normal times, but compare the ride since January 2020 for VTEB/BND/VGIT.
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Re: Bonds in free fall

Post by vineviz »

willthrill81 wrote: Mon Jan 10, 2022 3:48 pm That's certainly true, but it seems more likely than not to me that TIPS' yields are significantly lower than they would be if the Fed hadn't bought so many. That means that the bond market apart from the Fed is likely anticipating higher inflation than what is suggested by TIPS break-even yields and also means that TIPS may be underpriced right now. But I don't know what the future will bring. YMMV.
The support provided by the Fed in March/April 2020 was undoubtedly useful, but observing that the Fed provided liquidity informs only part of the story.

TIPS yields might be lower than they otherwise would be, but then again so are nominal yields. Remember that the naive 10-year BEI rate plummeted to just 0.50% in March 2020, before the Fed stepped in to shore up liquidity in the bond markets. There's now way that was an unbiased estimate of inflation expectations at that time. Instead it was a reflection of violent short-term moves in both the liquidity premiums for both TIPS and nominal bonds, the inflation risk premium in nominal bonds, and possibly - to a smaller degree - changes in the value of the so-called "deflation option" embedded in TIPS.

The story crafted by Bianco in his Tweets mentioned earlier also glosses over some important details, namely WHICH bonds the Fed was buying. In past QE episodes, the Fed has tended to be much more active in "off-the-run" securities rather than "on-the-run" securities. It is these "on-the-run" (i.e. most recently auctioned) securities which are used to construct the BEI rates, which matters because of the more limited Fed involvement AND the generally higher liquidity of these securities. In other words, any alleged distortion in BEI rates due to QE is much lower than Bianco is implying.
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Re: Bonds in free fall

Post by nedsaid »

vineviz wrote: Mon Jan 10, 2022 9:09 pm
willthrill81 wrote: Mon Jan 10, 2022 3:48 pm That's certainly true, but it seems more likely than not to me that TIPS' yields are significantly lower than they would be if the Fed hadn't bought so many. That means that the bond market apart from the Fed is likely anticipating higher inflation than what is suggested by TIPS break-even yields and also means that TIPS may be underpriced right now. But I don't know what the future will bring. YMMV.
The support provided by the Fed in March/April 2020 was undoubtedly useful, but observing that the Fed provided liquidity informs only part of the story.

TIPS yields might be lower than they otherwise would be, but then again so are nominal yields. Remember that the naive 10-year BEI rate plummeted to just 0.50% in March 2020, before the Fed stepped in to shore up liquidity in the bond markets. There's now way that was an unbiased estimate of inflation expectations at that time. Instead it was a reflection of violent short-term moves in both the liquidity premiums for both TIPS and nominal bonds, the inflation risk premium in nominal bonds, and possibly - to a smaller degree - changes in the value of the so-called "deflation option" embedded in TIPS.

The story crafted by Bianco in his Tweets mentioned earlier also glosses over some important details, namely WHICH bonds the Fed was buying. In past QE episodes, the Fed has tended to be much more active in "off-the-run" securities rather than "on-the-run" securities. It is these "on-the-run" (i.e. most recently auctioned) securities which are used to construct the BEI rates, which matters because of the more limited Fed involvement AND the generally higher liquidity of these securities. In other words, any alleged distortion in BEI rates due to QE is much lower than Bianco is implying.
This is a very interesting discussion. I have argued that Fed intervention has had a significant impact on the bond market, to the point that whatever signals the bond market is giving are unclear. The bond market could be signaling that the recent surge in inflation is temporary or it could be signaling that the Fed bought one heck of a lot of bonds or a combination of both. Do you have a number in mind of how large this distortion actually is?

My estimate is probably higher than yours.
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Re: Bonds in free fall

Post by vineviz »

nedsaid wrote: Mon Jan 10, 2022 9:17 pm My estimate is probably higher than yours.
If the Fed has moved the BEI by more than 10 or 20bps during this round of QE I'd be shocked.
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Re: Bonds in free fall

Post by Kevin K »

Good post by Cullen Roche (author of "Pragmatic Capitalism") on the current bond situation yesterday:

"I’ve described interest rates as being similar to a dog on a leash. That is, the Fed walks the Treasury market around and decides how much the dog will move at any point. At the handle the Fed has absolute control of how much the leash moves. They set the overnight rate and the dog has no control over it. Yes, the dog can influence it. Sometimes it will run fast (think, high inflation) and sometimes it will run slow (think, low inflation). Sometimes it will stop to poop (think, recession). Heck, sometimes it will even go backwards (think, deflation). But if the Fed really wanted to it could bring that leash in all the way and grab that dog by the neck. This would be the functional equivalent of issuing currency at 0%, as I mentioned before.

For the dominant reserve currency in a world where positive interest payments are always a subsidy relative to 0% currency there is no point in asking “who will buy the bonds?”. It would be like asking “who will pick up the printed money?” in our scenario where the government finances spending by printing literal cash. No one would ever ask that question about Dollar currency, but they ask it about bonds for some weird reason. Except in this case the printed government liability pays interest and so is superior across maturity periods. In other words, someone will always pick up the printed money. This is especially true in a world of hot potatoes with relative value players where we’re debating the relative value of the dominant reserve currency. The point is, unless you believe hyperinflation is coming, there is no logical reason to question whether people will want to hold US government denominated liabilities. The more interesting question is, what is a sustainable rate of interest for the USD?"

He concludes the Fed is having to walk a very fine line and (as usual) not doing so very gracefully.

https://www.pragcap.com/who-will-buy-the-bonds/
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Re: Bonds in free fall

Post by willthrill81 »

vineviz wrote: Mon Jan 10, 2022 9:09 pm
willthrill81 wrote: Mon Jan 10, 2022 3:48 pm That's certainly true, but it seems more likely than not to me that TIPS' yields are significantly lower than they would be if the Fed hadn't bought so many. That means that the bond market apart from the Fed is likely anticipating higher inflation than what is suggested by TIPS break-even yields and also means that TIPS may be underpriced right now. But I don't know what the future will bring. YMMV.
The support provided by the Fed in March/April 2020 was undoubtedly useful, but observing that the Fed provided liquidity informs only part of the story.

TIPS yields might be lower than they otherwise would be, but then again so are nominal yields. Remember that the naive 10-year BEI rate plummeted to just 0.50% in March 2020, before the Fed stepped in to shore up liquidity in the bond markets. There's now way that was an unbiased estimate of inflation expectations at that time. Instead it was a reflection of violent short-term moves in both the liquidity premiums for both TIPS and nominal bonds, the inflation risk premium in nominal bonds, and possibly - to a smaller degree - changes in the value of the so-called "deflation option" embedded in TIPS.

The story crafted by Bianco in his Tweets mentioned earlier also glosses over some important details, namely WHICH bonds the Fed was buying. In past QE episodes, the Fed has tended to be much more active in "off-the-run" securities rather than "on-the-run" securities. It is these "on-the-run" (i.e. most recently auctioned) securities which are used to construct the BEI rates, which matters because of the more limited Fed involvement AND the generally higher liquidity of these securities. In other words, any alleged distortion in BEI rates due to QE is much lower than Bianco is implying.
Thanks much for the additional info.
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Re: Bonds in free fall

Post by nedsaid »

vineviz wrote: Mon Jan 10, 2022 10:14 pm
nedsaid wrote: Mon Jan 10, 2022 9:17 pm My estimate is probably higher than yours.
If the Fed has moved the BEI by more than 10 or 20bps during this round of QE I'd be shocked.
That is low. I thought it would be more like 1.00% or even more. The Fed has bought something like $7 Trillion in Bonds since the 2008-2009 financial crisis. All I know is that historic interest rate relationships between different types of securities has been distorted. I recall when you could get inflation plus 2% to 3% on longer term US Treasuries, now you can't even get the inflation rate. Something has changed.

But you have been a portfolio manager and I have not.
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Re: Bonds in free fall

Post by Elysium »

Folks keep forgetting on these threads the United States Government bond rates do not operate in a sandbox independent of global capital market rates.

The US 10 year is a healthy 1.77%, IMO this is a very respectable rate considering rates around the world.

For comparison other 10 year Government bond rates:
Germany: -0.026%
UK: 1.18%
Canada: 1.73%
Australia: 1.88%
China: 2.8%

Central bank rates range from -0.25% in Japan to 54% in Venezuela. For most of the developed world markets they range in 0% to 0.25%, as central banks in these countries adopted an accommodative policy to combat slowdowns caused by the pandemic and to ease money supply. Most of these countries are far from getting out of the issues and the long term trend continues to keep pressure on rates to stay lower. United States is slightly different than many of these other developed countries, however, it is difficult to see a big move in U.S long term rates compared to other markets without those rates tricking up as well.
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Re: Bonds in free fall

Post by willthrill81 »

nedsaid wrote: Tue Jan 11, 2022 10:44 am
vineviz wrote: Mon Jan 10, 2022 10:14 pm
nedsaid wrote: Mon Jan 10, 2022 9:17 pm My estimate is probably higher than yours.
If the Fed has moved the BEI by more than 10 or 20bps during this round of QE I'd be shocked.
That is low. I thought it would be more like 1.00% or even more. The Fed has bought something like $7 Trillion in Bonds since the 2008-2009 financial crisis. All I know is that historic interest rate relationships between different types of securities has been distorted. I recall when you could get inflation plus 2% to 3% on longer term US Treasuries, now you can't even get the inflation rate. Something has changed.

But you have been a portfolio manager and I have not.
I agree that .1-.2% seems too low to me (I was thinking more like .5%-1%) but that vineviz is far more knowledgeable about such matters than me.
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Re: Bonds in free fall

Post by SeasOfCheese »

rockstar wrote: Mon Jan 10, 2022 6:34 pm
BlueEars wrote: Mon Jan 10, 2022 6:02 pm Rockstar, I was talking about trying to figure out what a TIPS purchase goal might be. People now are talking about buying them below -1%. I am not sure how what you wrote refers to a good real return for buying TIPS.
If you buy nominal right now, you're still negative. The only difference is that TIPS tell you upfront what you're negative real.
TIPS will give you a "real" rate of return relative to the government's calculated CPI. So it's kind of a situation where the borrower determines how much he owes.

And it's all pre-tax, if applicatble. So, the borrower also gets to tax you on your inflation gains. Unless I am mistaken. Does anyone hold TIPS in taxable accounts?
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Re: Bonds in free fall

Post by Robot Monster »

SeasOfCheese wrote: Tue Jan 11, 2022 12:11 pm
rockstar wrote: Mon Jan 10, 2022 6:34 pm
BlueEars wrote: Mon Jan 10, 2022 6:02 pm Rockstar, I was talking about trying to figure out what a TIPS purchase goal might be. People now are talking about buying them below -1%. I am not sure how what you wrote refers to a good real return for buying TIPS.
If you buy nominal right now, you're still negative. The only difference is that TIPS tell you upfront what you're negative real.
TIPS will give you a "real" rate of return relative to the government's calculated CPI. So it's kind of a situation where the borrower determines how much he owes.

And it's all pre-tax, if applicatble. So, the borrower also gets to tax you on your inflation gains. Unless I am mistaken. Does anyone hold TIPS in taxable accounts?
I hold my TIPS in taxable. Yes, the inflation adjustment gets taxed. In a TIPS fund the adjustment gets distributed in the dividends. In individual TIPS, the adjustment to principal gets taxed, and this adjustment is called "phantom income" because of this. That's my understanding, at least.
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000
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Re: Bonds in free fall

Post by 000 »

Throw, throw, throw your bonds
Quickly down the drain
Scarily, scarily, scarily they go
Today was filled with pain
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Re: Bonds in free fall

Post by Beensabu »

000 wrote: Fri Jan 14, 2022 4:36 pm Throw, throw, throw your bonds
Quickly down the drain
Scarily, scarily, scarily they go
Today was filled with pain
This is because you just got back in. We've had so many of these days in the last year :twisted: Just another 1%+ drop in LTT NAVs. No big deal.
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Re: Bonds in free fall

Post by mattshwink »

Robot Monster wrote: Tue Jan 11, 2022 12:18 pm Today was filled with pain
In our IRAs combined we have about $25,000 in bonds. We were down ~$25 today. I don't consider that pain.
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Re: Bonds in free fall

Post by theac »

Beensabu wrote: Fri Jan 14, 2022 4:45 pm
000 wrote: Fri Jan 14, 2022 4:36 pm Throw, throw, throw your bonds
Quickly down the drain
Scarily, scarily, scarily they go
Today was filled with pain
This is because you just got back in. We've had so many of these days in the last year :twisted: Just another 1%+ drop in LTT NAVs. No big deal.
You practically took the words out of my mouth! :D

I've been heavily in bonds for years, and for years I heard people say it was all over for bonds, and thru the years I let it ride, up, down, up, down, etc.

The big crash everyone kept predicting never came.
And who knows, this might be it.

But now I just see it like a roller-coaster ride and we just came over the top and are (possibly) now at that point where everybody is screaming and you feel like you just lost your stomach :D

Hopefully the maintenance crew has tightened all the nuts and bolts to their specified torque, and the ride ain't over yet!

Who knows, there may be a lot more fun to come...or not.

But as just stated by mattshwink:

"In our IRAs combined we have about $25,000 in bonds. We were down ~$25 today. I don't consider that pain."

I wouldn't either. That's peanuts compared to the pain I've seen going around when stocks take a big fall. Now that is what I'd call real pain.

Big Bond Pain is what, 5%?
Big Stock Pain is what, 40%?
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Re: Bonds in free fall

Post by rockstar »

mattshwink wrote: Fri Jan 14, 2022 4:48 pm
Robot Monster wrote: Tue Jan 11, 2022 12:18 pm Today was filled with pain
In our IRAs combined we have about $25,000 in bonds. We were down ~$25 today. I don't consider that pain.
The pain is hidden. You don't see the inflation impact until you go to the store.
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Re: Bonds in free fall

Post by theac »

rockstar wrote: Fri Jan 14, 2022 5:47 pm
mattshwink wrote: Fri Jan 14, 2022 4:48 pm
Robot Monster wrote: Tue Jan 11, 2022 12:18 pm Today was filled with pain
In our IRAs combined we have about $25,000 in bonds. We were down ~$25 today. I don't consider that pain.
The pain is hidden. You don't see the inflation impact until you go to the store.
As I see it, you never want to get yourself into a position where you even need to consider how buying groceries will impact your finances.

Or into a position where the price of groceries could make you, or break you.

If you've gotten yourself into such a position,
that there would definitely signal that there have been money-management problems somewhere along the way.
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Re: Bonds in free fall

Post by Beensabu »

rockstar wrote: Fri Jan 14, 2022 5:47 pm
mattshwink wrote: Fri Jan 14, 2022 4:48 pm
Robot Monster wrote: Tue Jan 11, 2022 12:18 pm Today was filled with pain
In our IRAs combined we have about $25,000 in bonds. We were down ~$25 today. I don't consider that pain.
The pain is hidden. You don't see the inflation impact until you go to the store.
It's not that bad. I had a perfectly respectable positive real return of ~6% last year with a 45/55 AA. Balance.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
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Re: Bonds in free fall

Post by rockstar »

theac wrote: Fri Jan 14, 2022 6:05 pm
rockstar wrote: Fri Jan 14, 2022 5:47 pm
mattshwink wrote: Fri Jan 14, 2022 4:48 pm
Robot Monster wrote: Tue Jan 11, 2022 12:18 pm Today was filled with pain
In our IRAs combined we have about $25,000 in bonds. We were down ~$25 today. I don't consider that pain.
The pain is hidden. You don't see the inflation impact until you go to the store.
As I see it, you never want to get yourself into a position where you even need to consider how buying groceries will impact your finances.

Or into a position where the price of groceries could make you, or break you.

If you've gotten yourself into such a position,
that there would definitely signal that there have been money-management problems somewhere along the way.
If you're retired and find you portfolio failing to keep up with inflation, this can become problematic if it persists.
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Re: Bonds in free fall

Post by rockstar »

Beensabu wrote: Fri Jan 14, 2022 6:16 pm
rockstar wrote: Fri Jan 14, 2022 5:47 pm
mattshwink wrote: Fri Jan 14, 2022 4:48 pm
Robot Monster wrote: Tue Jan 11, 2022 12:18 pm Today was filled with pain
In our IRAs combined we have about $25,000 in bonds. We were down ~$25 today. I don't consider that pain.
The pain is hidden. You don't see the inflation impact until you go to the store.
It's not that bad. I had a perfectly respectable positive real return of ~6% last year with a 45/55 AA. Balance.
So you're -1% real. That's not bad. It's really when this persists for more than a year or two that it becomes a problem.
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theac
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Re: Bonds in free fall

Post by theac »

rockstar wrote: Fri Jan 14, 2022 6:17 pm
theac wrote: Fri Jan 14, 2022 6:05 pm
rockstar wrote: Fri Jan 14, 2022 5:47 pm
mattshwink wrote: Fri Jan 14, 2022 4:48 pm
Robot Monster wrote: Tue Jan 11, 2022 12:18 pm Today was filled with pain
In our IRAs combined we have about $25,000 in bonds. We were down ~$25 today. I don't consider that pain.
The pain is hidden. You don't see the inflation impact until you go to the store.
As I see it, you never want to get yourself into a position where you even need to consider how buying groceries will impact your finances.

Or into a position where the price of groceries could make you, or break you.

If you've gotten yourself into such a position,
that there would definitely signal that there have been money-management problems somewhere along the way.
If you're retired and find you portfolio failing to keep up with inflation, this can become problematic if it persists.
Only if you depend on your portfolio for your livelihood.
"We keep you alive to serve this ship. Row well...and live." Ben Hur...and The Taxman! hahaha (a George Harrison song)
rockstar
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Re: Bonds in free fall

Post by rockstar »

theac wrote: Fri Jan 14, 2022 6:19 pm
rockstar wrote: Fri Jan 14, 2022 6:17 pm
theac wrote: Fri Jan 14, 2022 6:05 pm
rockstar wrote: Fri Jan 14, 2022 5:47 pm
mattshwink wrote: Fri Jan 14, 2022 4:48 pm
In our IRAs combined we have about $25,000 in bonds. We were down ~$25 today. I don't consider that pain.
The pain is hidden. You don't see the inflation impact until you go to the store.
As I see it, you never want to get yourself into a position where you even need to consider how buying groceries will impact your finances.

Or into a position where the price of groceries could make you, or break you.

If you've gotten yourself into such a position,
that there would definitely signal that there have been money-management problems somewhere along the way.
If you're retired and find you portfolio failing to keep up with inflation, this can become problematic if it persists.
Only if you depend on your portfolio for your livelihood.
Which is what retired people do until they start collecting social security.
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theac
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Re: Bonds in free fall

Post by theac »

rockstar wrote: Fri Jan 14, 2022 6:22 pm
theac wrote: Fri Jan 14, 2022 6:19 pm
rockstar wrote: Fri Jan 14, 2022 6:17 pm
theac wrote: Fri Jan 14, 2022 6:05 pm
rockstar wrote: Fri Jan 14, 2022 5:47 pm

The pain is hidden. You don't see the inflation impact until you go to the store.
As I see it, you never want to get yourself into a position where you even need to consider how buying groceries will impact your finances.

Or into a position where the price of groceries could make you, or break you.

If you've gotten yourself into such a position,
that there would definitely signal that there have been money-management problems somewhere along the way.
If you're retired and find you portfolio failing to keep up with inflation, this can become problematic if it persists.
Only if you depend on your portfolio for your livelihood.
Which is what retired people do until they start collecting social security.
Well I can only speak for myself,
but I got a pretty good pension when I took my retirement at 52.

Unfortunately, today pensions have become dinosaurs,
so yeah, that could be a big problem for upcoming retirees.

And to top it off, people have become big-time consumers of things they really don't need, so they don't know how to control themselves, nor how to save.
"We keep you alive to serve this ship. Row well...and live." Ben Hur...and The Taxman! hahaha (a George Harrison song)
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Beensabu
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Re: Bonds in free fall

Post by Beensabu »

rockstar wrote: Fri Jan 14, 2022 6:18 pm
Beensabu wrote: Fri Jan 14, 2022 6:16 pm
rockstar wrote: Fri Jan 14, 2022 5:47 pm
mattshwink wrote: Fri Jan 14, 2022 4:48 pm
Robot Monster wrote: Tue Jan 11, 2022 12:18 pm Today was filled with pain
In our IRAs combined we have about $25,000 in bonds. We were down ~$25 today. I don't consider that pain.
The pain is hidden. You don't see the inflation impact until you go to the store.
It's not that bad. I had a perfectly respectable positive real return of ~6% last year with a 45/55 AA. Balance.
So you're -1% real. That's not bad. It's really when this persists for more than a year or two that it becomes a problem.
No, I'm 6% real. 13% nominal. That's not bad.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
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FreddieFIRE
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Re: Bonds in free fall

Post by FreddieFIRE »

PVolker wrote: Fri Jan 07, 2022 4:42 pm I have a rung of ten year TIPS maturing on 1/15, with the January auction scheduled for 1/20. I've been expecting another -1% real yield, but Mr. Market is giving us signs of hope. The ten year real yield has risen .32% since the end of 2021 and now stands at -.72%. Will that go to 0% in the next 12 days? One can only hope! 8-)
Magic 8 ball now says "unlikely." However, we are up to -.66%. 8-)
A house and a job. Once the American dream. Two things I'll never again have. Life is simple (and good).
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Re: Bonds in free fall

Post by mattshwink »

rockstar wrote: Fri Jan 14, 2022 5:47 pm
mattshwink wrote: Fri Jan 14, 2022 4:48 pm
Robot Monster wrote: Tue Jan 11, 2022 12:18 pm Today was filled with pain
In our IRAs combined we have about $25,000 in bonds. We were down ~$25 today. I don't consider that pain.
The pain is hidden. You don't see the inflation impact until you go to the store.
I was at the store today. I go once to twice a week. I've noticed. I do a budget at the end of every year. I haven't upped the grocery budget in a while, but did so at the beginning of this year by 17%. Will I next year? Only time will tell.

But I also recognize my total portfolio was up a little over 20% last year. So I beat inflation handily. Will I in 2022? I'll let you know in 11.5 months. But it's not about winning years, it's about winning over the next ~50. Blips don't bother me. If they did I'd panic over every drop (like the one last year that would have wiped out most of my gain if it had held).

And I'm lucky (but also have made some of my own luck). I am in a two income household with two good incomes. While our expenses have gone up a couple hundred a month, both my wife and my raises will be (in take-home dollar terms) be about twice what our increased monthly expenditures are. The items that have seen the most inflation are are also not issues in my household (gas - we fill up our cars every 2-3 weeks, cars - paid off, steak/beef - only a small part of our diet). So our expenses haven't risen as much as others.

But even if inflation stays the same and my portfolio is up even half as much (10%). I'll certainly take it.
TexasBorn
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Re: Bonds in free fall

Post by TexasBorn »

My 4 fund 30/70 portfolio returned 7.4% in 2021. I never lost a nights sleep when inflation was climbing.

My 4 fund retirement 90/10 portfolio returned 17.4%. I thought occasionally about it cratering, but my timeline is so far out, that gave me comfort.

I feel like this thread is for people who choose to be 100% bonds, right? Otherwise, isn’t the point of curbing inflation & protecting your money a product of your AA…?

I say bring on the bonds! I like sleeping.
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Re: Bonds in free fall

Post by Call_Me_Op »

rockstar wrote: Fri Jan 14, 2022 6:18 pm
Beensabu wrote: Fri Jan 14, 2022 6:16 pm
rockstar wrote: Fri Jan 14, 2022 5:47 pm
mattshwink wrote: Fri Jan 14, 2022 4:48 pm
Robot Monster wrote: Tue Jan 11, 2022 12:18 pm Today was filled with pain
In our IRAs combined we have about $25,000 in bonds. We were down ~$25 today. I don't consider that pain.
The pain is hidden. You don't see the inflation impact until you go to the store.
It's not that bad. I had a perfectly respectable positive real return of ~6% last year with a 45/55 AA. Balance.
So you're -1% real. That's not bad. It's really when this persists for more than a year or two that it becomes a problem.
He said he had a 6% REAL return, not 6% nominal.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
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Forester
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Re: Bonds in free fall

Post by Forester »

Elysium wrote: Tue Jan 11, 2022 11:15 am Folks keep forgetting on these threads the United States Government bond rates do not operate in a sandbox independent of global capital market rates.

The US 10 year is a healthy 1.77%, IMO this is a very respectable rate considering rates around the world.

For comparison other 10 year Government bond rates:
Germany: -0.026%
UK: 1.18%
Canada: 1.73%
Australia: 1.88%
China: 2.8%

Central bank rates range from -0.25% in Japan to 54% in Venezuela. For most of the developed world markets they range in 0% to 0.25%, as central banks in these countries adopted an accommodative policy to combat slowdowns caused by the pandemic and to ease money supply. Most of these countries are far from getting out of the issues and the long term trend continues to keep pressure on rates to stay lower. United States is slightly different than many of these other developed countries, however, it is difficult to see a big move in U.S long term rates compared to other markets without those rates tricking up as well.
China has real rates of about 1.3%, or call it an even 1%, whereas the US has a real 10yr rate of negative 5.2%, that's a 6.5% difference! Even if one disbelieves the Chinese data, there's a gaping chasm between the world's two largest economies.

https://tradingeconomics.com/china/inflation-cpi
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Starfox
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Re: Bonds in free fall

Post by Starfox »

drk wrote: Mon Jan 10, 2022 7:52 pm
Starfox wrote: Mon Jan 10, 2022 7:39 pm I'm wondering if there is any benefit of selling half of my holdings in VTEB and buying BND, for diversification purposes.
What kind of diversification are you looking for? If you have a lot of money in stocks, maybe you don't want to add corporate bond risk, so a Treasury fund could be a better option. You'll lose some yield in normal times, but compare the ride since January 2020 for VTEB/BND/VGIT.
I'm retired with asset allocation of 75/25, and my tax bracket from dividends/capital gains alone puts me in the highest bracket + NIIT, is 40.8%. My bond allocation has always been in VWIUX and VTEB for the past several years becauase the TEY was higher than being in VBTLX/BND (Total Bond).

Today the SEC yield:
VTEB (Tax-Exempt Index) is 1% (TEY 1.69%)
BND (Total Bond Index) is 1.68%
BIV (Intermediate Term Index) is 1.86%.

In my tax bracket, VTEB TEY is 1.69%. BND yield is equal, and BIV is 10% higher.

I'm now thinking I should just exchange 100% to BND to have the same yield or BIV to have 10% higher bond income.
Regarding diversification, I think the relative risk of BND/BIV is lower than VTEB, and the tax equivalent yield is either the same or higher.

Am I overlooking something or miscalculating?
Elysium
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Re: Bonds in free fall

Post by Elysium »

Forester wrote: Sat Jan 15, 2022 12:02 pm
Elysium wrote: Tue Jan 11, 2022 11:15 am Folks keep forgetting on these threads the United States Government bond rates do not operate in a sandbox independent of global capital market rates.

The US 10 year is a healthy 1.77%, IMO this is a very respectable rate considering rates around the world.

For comparison other 10 year Government bond rates:
Germany: -0.026%
UK: 1.18%
Canada: 1.73%
Australia: 1.88%
China: 2.8%

Central bank rates range from -0.25% in Japan to 54% in Venezuela. For most of the developed world markets they range in 0% to 0.25%, as central banks in these countries adopted an accommodative policy to combat slowdowns caused by the pandemic and to ease money supply. Most of these countries are far from getting out of the issues and the long term trend continues to keep pressure on rates to stay lower. United States is slightly different than many of these other developed countries, however, it is difficult to see a big move in U.S long term rates compared to other markets without those rates tricking up as well.
China has real rates of about 1.3%, or call it an even 1%, whereas the US has a real 10yr rate of negative 5.2%, that's a 6.5% difference! Even if one disbelieves the Chinese data, there's a gaping chasm between the world's two largest economies.

https://tradingeconomics.com/china/inflation-cpi
I reject short term CPI rates reported in US comprised of Energy, Food, and some other short supply items that some folks site to showcase unnaturally low real rates. Most people aren't having that kind of effect in the US at the moment in their life. In fact costs are down for me personally since 2020. One major expense is housing which for most homeowners with a loan should have gone lower due to low rate refinancing, and paying with cheaper dollars.

Therefore the 6% to 7% quoted above to project US real returns of -5.2% is to be discounted, until such time later at end of 2022/23 we do not see it abating. Inflation is likely going to be higher than 2.2% earlier targeted by Fed, but highly unlikely to stay even above 4%, as we may see 3% plus inflation which used to be more of a norm in the US many years back. As for Chinese inflation, who really cares what it is? it's of no use to US investors because all we can get is 2.8% on Chinese government bonds, and that comes with higher amount of risk of course, and in my view not enough of a premium worth trading US Govt bonds for. Besides, funny how China isn't having to pay more for Energy and or other short supply items when the whole world is having to pay for them. The higher CPI numbers in US is not something uniquely created by US, it's the effect of supply chain shortages and higher demand coming out of pandemic, which is still expected to be transitory.
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Re: Bonds in free fall

Post by willthrill81 »

theac wrote: Fri Jan 14, 2022 5:26 pm Big Bond Pain is what, 5%?
Big Stock Pain is what, 40%?
From 1977-1981, intermediate-term Treasuries lost nearly 50% of their inflation-adjusted value.

From 1941-1947, they lost 30% of their inflation-adjusted value.
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dan7800
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Re: Bonds in free fall

Post by dan7800 »

iBond-related questions:

1) If I am buying iBonds for myself and my spouse ($10k each/year), do I need a separate treasury direct account for each of us, or can we use the same TD account?
2) Could I (and would it be legal) for me to buy 10k worth of ibonds for my baby daughter, and I could then utilize this account for purchases a few years down the road (eg a family car)?

Thanks all
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JoMoney
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Re: Bonds in free fall

Post by JoMoney »

willthrill81 wrote: Sun Jan 16, 2022 7:54 pm
theac wrote: Fri Jan 14, 2022 5:26 pm Big Bond Pain is what, 5%?
Big Stock Pain is what, 40%?
From 1977-1981, intermediate-term Treasuries lost nearly 50% of their inflation-adjusted value.

From 1941-1947, they lost 30% of their inflation-adjusted value.
Some chart links for "Government Bonds" (which aren't necessarily the same as Treasuries)
01/01/1977 - 09/30/1981 (-30.23%)

01/01/1941 - 12/31/1947 (-32.85%)
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
rockstar
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Re: Bonds in free fall

Post by rockstar »

willthrill81 wrote: Sun Jan 16, 2022 7:54 pm
theac wrote: Fri Jan 14, 2022 5:26 pm Big Bond Pain is what, 5%?
Big Stock Pain is what, 40%?
From 1977-1981, intermediate-term Treasuries lost nearly 50% of their inflation-adjusted value.

From 1941-1947, they lost 30% of their inflation-adjusted value.
Thinking about inflation adjusted is a new mindset for folks.
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JoMoney
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Re: Bonds in free fall

Post by JoMoney »

dan7800 wrote: Sun Jan 16, 2022 8:34 pm iBond-related questions:

1) If I am buying iBonds for myself and my spouse ($10k each/year), do I need a separate treasury direct account for each of us, or can we use the same TD account?
2) Could I (and would it be legal) for me to buy 10k worth of ibonds for my baby daughter, and I could then utilize this account for purchases a few years down the road (eg a family car)?

Thanks all
Yes, you need separate accounts. You can buy them and then "gift them" to your spouse and baby daughter, but they'll need their own account to hold them, and the $10,000 annual limit applies regardless of how they acquire them (whether purchased directly in their account, or gifted to them.)
Note the baby daughter would need a social security number to get an account.
If my parents gifted me money, then used it to by "the family" a car, I probably wouldn't be happy about it, even if they explained to me that they were just using me to game the system to earn a few extra percent of interest... but as a minor, my parents would have control to do whatever they thought appropriate with my finances.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
dan7800
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Re: Bonds in free fall

Post by dan7800 »

JoMoney wrote: Sun Jan 16, 2022 8:42 pm
dan7800 wrote: Sun Jan 16, 2022 8:34 pm iBond-related questions:

1) If I am buying iBonds for myself and my spouse ($10k each/year), do I need a separate treasury direct account for each of us, or can we use the same TD account?
2) Could I (and would it be legal) for me to buy 10k worth of ibonds for my baby daughter, and I could then utilize this account for purchases a few years down the road (eg a family car)?

Thanks all
Yes, you need separate accounts. You can buy them and then "gift them" to your spouse and baby daughter, but they'll need their own account to hold them, and the $10,000 annual limit applies regardless of how they acquire them (whether purchased directly in their account, or gifted to them.)
Note the baby daughter would need a social security number to get an account.
If my parents gifted me money, then used it to by "the family" a car, I probably wouldn't be happy about it, even if they explained to me that they were just using me to game the system to earn a few extra percent of interest... but as a minor, my parents would have control to do whatever they thought appropriate with my finances.
My daughter is 4 months old (and has a SS#), and I'd probably take the money out of her account before she was even 5. So I take it that this would be legal, even if didn't spend withdraw on her? (Basically I could use her to increase my iBond limit to 30k/year - Me + wife + baby). We're putting in $10k/yr into your 529 each year (max deduction for NYS)

Thanks
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