Is there a high chance Bonds sell off next year?
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Is there a high chance Bonds sell off next year?
The Fed has indicated a likely rise in interest rates in 2022. 6 to 7 rate hikes through 2024.
https://news.yahoo.com/fed-fomc-monetar ... 45429.html
Does that almost guarantee that Bonds (like the fund BND) are going to sell off? I have cash reserved for bond purchases, but this makes me want to market time with bonds and wait before buying.
https://news.yahoo.com/fed-fomc-monetar ... 45429.html
Does that almost guarantee that Bonds (like the fund BND) are going to sell off? I have cash reserved for bond purchases, but this makes me want to market time with bonds and wait before buying.
- Taylor Larimore
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Re: Is there a high chance Bonds sell off next year?
JimmyJammy:JimmyJammy wrote: ↑Thu Sep 23, 2021 10:02 am The Fed has indicated a likely rise in interest rates in 2022. 6 to 7 rate hikes through 2024.
https://news.yahoo.com/fed-fomc-monetar ... 45429.html
Does that almost guarantee that Bonds (like the fund BND) are going to sell off? I have cash reserved for bond purchases, but this makes me want to market time with bonds and wait before buying.
Forget market timing (stocks and bonds). The "fed-fomac-monetary-policy" is already incorporated into bond prices.
Best wishes
Taylor
Jack Bogle's Wisdom: "After nearly 50 years in this business, I do not know of anybody who has done market timing successfully and consistently. I don't even know anybody who knows anybody who has done it successfully and consistently."
"Simplicity is the master key to financial success." -- Jack Bogle
Re: Is there a high chance Bonds sell off next year?
I think so.
That’s why I’ve moved a good part of my fixed income allocation into multi year guaranteed annuities (MYGAs). MYGAs currently pay well more than bond funds, and are guaranteed to return full principal and interest if held to maturity.
That’s why I’ve moved a good part of my fixed income allocation into multi year guaranteed annuities (MYGAs). MYGAs currently pay well more than bond funds, and are guaranteed to return full principal and interest if held to maturity.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
Re: Is there a high chance Bonds sell off next year?
This is hard for a lot of people to get their heads around > but IF there is a "potential bond selloff next year", it has already happened.
All information is already baked into the market. Before the Powell spoke, people had already priced in the risk of him saying "we're going to taper". Now that he has said "we're probably going to taper", the high likelihood of tapering is already baked in. Of course, not everyone believes that - so if there is a taper, you'll probably see more movement.
But, this idea that once a taper happens, all the wheels fall off- unlikely. People are already adjusting their positions, just like you're sitting there fretting. The problem with you as an individual investor is that
1) You probably get the information later than the big dogs
2) The big dogs have many more experts positioned to digest and manage that information
Which is why we say pick a position and ride it out.
All information is already baked into the market. Before the Powell spoke, people had already priced in the risk of him saying "we're going to taper". Now that he has said "we're probably going to taper", the high likelihood of tapering is already baked in. Of course, not everyone believes that - so if there is a taper, you'll probably see more movement.
But, this idea that once a taper happens, all the wheels fall off- unlikely. People are already adjusting their positions, just like you're sitting there fretting. The problem with you as an individual investor is that
1) You probably get the information later than the big dogs
2) The big dogs have many more experts positioned to digest and manage that information
Which is why we say pick a position and ride it out.
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Re: Is there a high chance Bonds sell off next year?
How much loss are you expecting? A massive sell off would be about 10% for about 1.5% rise in yields; that is far less than what stock could experience. And that covers 6 hikes of 0.25%.JimmyJammy wrote: ↑Thu Sep 23, 2021 10:02 am The Fed has indicated a likely rise in interest rates in 2022. 6 to 7 rate hikes through 2024.
https://news.yahoo.com/fed-fomc-monetar ... 45429.html
Does that almost guarantee that Bonds (like the fund BND) are going to sell off? I have cash reserved for bond purchases, but this makes me want to market time with bonds and wait before buying.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
Re: Is there a high chance Bonds sell off next year?
BND currently has a yield of 1.30%.secondopinion wrote: ↑Thu Sep 23, 2021 10:32 am How much loss are you expecting? A massive sell off would be about 10% for about 1.5% rise in yields; that is far less than what stock could experience. And that covers 6 hikes of 0.25%.
A 10% sell off would be equal to almost 8 years of interest (at current rates).
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
Re: Is there a high chance Bonds sell off next year?
You need to distinguish between sell-off (which is fear and loathing-driven) and interest-rate volatility (Duration), which is mechanical.
Re: Is there a high chance Bonds sell off next year?
From Google: "The last full cycle of rate increases occurred between June 2004 and June 2006 as rates steadily rose from 1.00% to 5.25%."
Well, that must have been a disaster for Vanguard Total Bond Fund, right? Let's look at the total return:
2004: 4.24%
2005: 2.40%
2006: 4.27%
Well, that must have been a disaster for Vanguard Total Bond Fund, right? Let's look at the total return:
2004: 4.24%
2005: 2.40%
2006: 4.27%
Re: Is there a high chance Bonds sell off next year?
Real (inflation adjusted) return:Tom_T wrote: ↑Thu Sep 23, 2021 11:26 am From Google: "The last full cycle of rate increases occurred between June 2004 and June 2006 as rates steadily rose from 1.00% to 5.25%."
Well, that must have been a disaster for Vanguard Total Bond Fund, right? Let's look at the total return:
2004: 4.24%
2005: 2.40%
2006: 4.27%
2004: 1%
2005: -1%
2006: 1.8%
Disaster? No.
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Re: Is there a high chance Bonds sell off next year?
Yes, but then you will earn 2.80% for that point on. Do not look at it in isolation because rates increasing will drastically change that prospective.Stinky wrote: ↑Thu Sep 23, 2021 11:17 amBND currently has a yield of 1.30%.secondopinion wrote: ↑Thu Sep 23, 2021 10:32 am How much loss are you expecting? A massive sell off would be about 10% for about 1.5% rise in yields; that is far less than what stock could experience. And that covers 6 hikes of 0.25%.
A 10% sell off would be equal to almost 8 years of interest (at current rates).
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
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Re: Is there a high chance Bonds sell off next year?
> Is there a high chance Bonds sell off next year?
Yep, I been thinkin on it.
(rocks)
Whole lotta talk on that tee vee o' mine.
(rocks some more)
I figger it could go one way, could go 'tother.
(rocks. Relights corncob pipe. With difficulty).
I guess we're just gonna have to wait 'n see.
(much more rocking. Corncob pipe goes out again.)
(sunset)
Yep, I been thinkin on it.
(rocks)
Whole lotta talk on that tee vee o' mine.
(rocks some more)
I figger it could go one way, could go 'tother.
(rocks. Relights corncob pipe. With difficulty).
I guess we're just gonna have to wait 'n see.
(much more rocking. Corncob pipe goes out again.)
(sunset)
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- Joined: Sat Oct 26, 2013 1:08 pm
Re: Is there a high chance Bonds sell off next year?
LOL!
Thanks for that little scene.
Thanks for that little scene.
Re: Is there a high chance Bonds sell off next year?
The Fed sets or targets the Fed Funds rate which is an overnight interbank lending rate. Raising the Fed Funds may not effect other interest rates as Tom_T's post above shows.JimmyJammy wrote: ↑Thu Sep 23, 2021 10:02 am The Fed has indicated a likely rise in interest rates in 2022. 6 to 7 rate hikes through 2024.
https://news.yahoo.com/fed-fomc-monetar ... 45429.html
Does that almost guarantee that Bonds (like the fund BND) are going to sell off? I have cash reserved for bond purchases, but this makes me want to market time with bonds and wait before buying.
Dave
"Reality always wins, your only job is to get in touch with it." Wilfred Bion
Re: Is there a high chance Bonds sell off next year?
Raising rates too soon lowers inflation expectations which offsets the higher rate. This stuff is basically impossible to predict. Higher rates != higher rates.
Re: Is there a high chance Bonds sell off next year?
There is more than one interest rate. The rate that the Fed targets is the federal funds rate, which is the rate for overnight loans, and thus determines short-term rates. If this rate rises, Treasury bill rates (and rates on money-market funds, which hold Treasury bills and other short-term investments) will rise.JimmyJammy wrote: ↑Thu Sep 23, 2021 10:02 am The Fed has indicated a likely rise in interest rates in 2022. 6 to 7 rate hikes through 2024.
https://news.yahoo.com/fed-fomc-monetar ... 45429.html
Does that almost guarantee that Bonds (like the fund BND) are going to sell off? I have cash reserved for bond purchases, but this makes me want to market time with bonds and wait before buying.
But BND holds longer-term bonds, and those yields may not rise at the same time. A bond trader can buy a ten-year bond, or buy three-month Treasury bills every quarter for ten years. If the trader chooses to buy a ten-year bond, the yield (which is determined by the current price) should be higher than the expected ten-year return on Treasury bills, in order to compensate for the risk. Therefore, the Fed's planned moves are already part of the ten-year price.
BND will lose money if intermediate-term and long-term bond yields rise, but it has a higher yield than money-market funds as compensation for that risk.
Re: Is there a high chance Bonds sell off next year?
You do not have to figure this out for yourself.
Suppose all the bond investors in the world got together and made their predictions. They debated the arguments for and against a bond selloff. Not everyone gets an equal vote. The biggest institutional bond investors, those with armies of analysts and mathematicians going over the data and building models have the most influence on the prediction. Most of these institutional investors will not show you their analysis but they contribute to the group consensus. The largest of them will tell you how they evaluate the situation and what they concluded. The group as a whole constantly updates the prediction and notifies all subscribers on a continuing basis.
Incredibly valuable service. How much does it cost to get this massive prediction process working for you? Nothing. They determine the bond prices you see when you check on any of thousands of sites that will give you this information for free.
The Fed routinely publishes its interpretations. And it tells you how much it is going to buy. Again for free.
Not only can you get the prediction for free, you can invest in the bond market at prices determined by this process. If you buy an index mutual fund, you may have to pay fewer than 10 basis points. If you buy direct from the Treasury Department, no fees. No transaction costs. No holding costs.
I do not have any reason to believe I can generate a better prediction of future bond prices than all the bond experts in the world. So I go with my strategy of buying bonds up to the amount I need for my investment plans.
For these reasons I do not attempt to time my buys.
Suppose all the bond investors in the world got together and made their predictions. They debated the arguments for and against a bond selloff. Not everyone gets an equal vote. The biggest institutional bond investors, those with armies of analysts and mathematicians going over the data and building models have the most influence on the prediction. Most of these institutional investors will not show you their analysis but they contribute to the group consensus. The largest of them will tell you how they evaluate the situation and what they concluded. The group as a whole constantly updates the prediction and notifies all subscribers on a continuing basis.
Incredibly valuable service. How much does it cost to get this massive prediction process working for you? Nothing. They determine the bond prices you see when you check on any of thousands of sites that will give you this information for free.
The Fed routinely publishes its interpretations. And it tells you how much it is going to buy. Again for free.
Not only can you get the prediction for free, you can invest in the bond market at prices determined by this process. If you buy an index mutual fund, you may have to pay fewer than 10 basis points. If you buy direct from the Treasury Department, no fees. No transaction costs. No holding costs.
I do not have any reason to believe I can generate a better prediction of future bond prices than all the bond experts in the world. So I go with my strategy of buying bonds up to the amount I need for my investment plans.
For these reasons I do not attempt to time my buys.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either |
--Swedroe |
We assume that markets are efficient, that prices are right |
--Fama
Re: Is there a high chance Bonds sell off next year?
So what if they do? Would that make a difference to your long-term goal?JimmyJammy wrote: ↑Thu Sep 23, 2021 10:02 am Does that almost guarantee that Bonds (like the fund BND) are going to sell off?
Sure. Why not. It's fine to do that with bonds, apparently. Just make sure you don't talk about thinking of doing that with stocks or you'll be hearing all about cash drag and opportunity cost and whatnot.I have cash reserved for bond purchases, but this makes me want to market time with bonds and wait before buying.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin