Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 07-06-2013, 08:11 PM   #41
Full time employment: Posting here.
 
Join Date: Jun 2013
Posts: 621
Quote:
Originally Posted by REWahoo View Post
Someone always comes along to spoil a good story by wanting facts...
Speaking of facts, the common wisdom seems to be that interest rates are at rock bottom and have no where to go but up.

However...yesterday's 10-year treasury yield was 2.73%. As recently as May 2, the rate was 1.66%. That's a 64% increase in just two months. How can a value that's 64% higher than it was just a few weeks ago be considered rock bottom?
__________________

__________________
Which Roger is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 07-06-2013, 08:36 PM   #42
Confused about dryer sheets
 
Join Date: Mar 2012
Location: West Chester
Posts: 8
According to ICI data there was 60 billion going out of bond funds in June. But since 2007 there was 1.275 trillion of net inflows into bond funds. Not sure what to read into that... I'm sure the Portfolio Managers at PIMCO were happy.
__________________

__________________
RyanM is offline   Reply With Quote
Old 07-06-2013, 08:59 PM   #43
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,446
Quote:
Originally Posted by Gatordoc50 View Post
U.S. public pension funds - Asset allocations: past, present and future - Pensions & Investments


Here is a link to an article that shows the general trend in the past year or so of public pensions reducing their bond allocation. I have also been studying individual states AA and have noticed a remarkable reduction in bonds in many of them.
Looks to me like they are reducing equities and increasing alternatives in recent years. I find the 8% reduction in equities more relevant than the 2% reduction in bonds. However, the alternatives are quite equity-like so for the most part it seems to be simply a tradeoff of equity for private equity (which is probably what a lot of the "alternatives" are). I don't know if I would read a lot into the 2% reduction in bonds and to characterize it as "bailing" seems like sensationalism.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is online now   Reply With Quote
Old 07-06-2013, 09:07 PM   #44
Full time employment: Posting here.
 
Join Date: May 2011
Location: Marco island
Posts: 813
Quote:
Originally Posted by pb4uski

Looks to me like they are reducing equities and increasing alternatives in recent years. I find the 8% reduction in equities more relevant than the 2% reduction in bonds. However, the alternatives are quite equity-like so for the most part it seems to be simply a tradeoff of equity for private equity (which is probably what a lot of the "alternatives" are). I don't know if I would read a lot into the 2% reduction in bonds and to characterize it as "bailing" seems like sensationalism.
This chart was last year. If you go to specific States and check their AA as of now, you will find fixed income in the 8 to 10% range. Many are dumping fixed income.
__________________
Gatordoc50 is offline   Reply With Quote
Old 07-06-2013, 09:22 PM   #45
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,446
Are you saying that they have gone from the mid 20s to 8-10% in one year?
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is online now   Reply With Quote
Old 07-06-2013, 09:40 PM   #46
Full time employment: Posting here.
 
Join Date: May 2011
Location: Marco island
Posts: 813
Quote:
Originally Posted by pb4uski
Are you saying that they have gone from the mid 20s to 8-10% in one year?
http://m.pionline.com/article/201306...YREG/130629986

Arizona has. Some states are still at 20+ but many are making significant adjustments.
__________________
Gatordoc50 is offline   Reply With Quote
Old 07-07-2013, 05:11 AM   #47
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,836
Quote:
Originally Posted by Which Roger View Post
Speaking of facts, the common wisdom seems to be that interest rates are at rock bottom and have no where to go but up.

However...yesterday's 10-year treasury yield was 2.73%. As recently as May 2, the rate was 1.66%. That's a 64% increase in just two months. How can a value that's 64% higher than it was just a few weeks ago be considered rock bottom?
I'm looking forward to the higher interest rates that my bond funds will earn in the future. IMHO people put too much emphasis on NAV when it comes to bonds.
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”

Current AA: 65% Equity Funds / 20% Bonds / 7% Stable Value /3% Cash / 5% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
nun is offline   Reply With Quote
Old 07-07-2013, 08:06 AM   #48
Thinks s/he gets paid by the post
 
Join Date: Nov 2009
Posts: 3,870
Quote:
Originally Posted by nun View Post
I'm looking forward to the higher interest rates that my bond funds will earn in the future. IMHO people put too much emphasis on NAV when it comes to bonds.
+1. I am bond funds for the income, not the price changes. Bond fund monthly dividends per share have been dropping over the years so it would be nice to see them rise again.
__________________
Retired in late 2008 at age 45. Cashed in company stock, bought a lot of shares in a big bond fund and am living nicely off its dividends. IRA, SS, and a pension await me at age 60 and later. No kids, no debts.

"I want my money working for me instead of me working for my money!"
scrabbler1 is offline   Reply With Quote
Old 07-07-2013, 10:31 AM   #49
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Lsbcal's Avatar
 
Join Date: May 2006
Location: west coast, hi there!
Posts: 5,686
I'm not planning for the current situation to get worse or better in bonds, just sitting tight. But the nice thing is that it now pays to go further out on the yield curve. So that is a plus for intermediate term bonds and comforting to me.

Here is a historical perspective (right scale is the spread %, and left scale is the 5yr Treasury yield):


__________________
Lsbcal is offline   Reply With Quote
Old 07-07-2013, 11:22 AM   #50
Full time employment: Posting here.
gcgang's Avatar
 
Join Date: Sep 2012
Posts: 928
Quote:
Originally Posted by nun View Post
I'm looking forward to the higher interest rates that my bond funds will earn in the future. IMHO people put too much emphasis on NAV when it comes to bonds.
Are you kidding? Yields will go up BECAUSE the NAV goes down. It does not necessarily mean that your income will go up.

You want higher standard of living? Invest for total return and spend part of your principal.
__________________
In theory, there's no difference between theory and practice. In practice, there is. YB
gcgang is offline   Reply With Quote
Old 07-07-2013, 11:35 AM   #51
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Feb 2013
Posts: 5,327
We thought that the percent interest rates could drop versus the percent they could go (infinity times infinity ) up, the highest probability in making the most amount of money was in selling bonds and intermediate and long term bond funds when mortgage rates hit an all time, historic low and rebuying at some point later on.

Time will tell. So far I am not unhappy we refinanced the house and and bailed on intermediate and long term bonds when we did. I think we just went with the probabilities of rates rising this year or next, so even if this doesn't work out long term this time I'd probably make the same decision again in the future, as long as I had probabilities on my side.
__________________
daylatedollarshort is offline   Reply With Quote
Old 07-07-2013, 11:40 AM   #52
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,386
Quote:
Originally Posted by gcgang View Post
Are you kidding? Yields will go up BECAUSE the NAV goes down. It does not necessarily mean that your income will go up.

You want higher standard of living? Invest for total return and spend part of your principal.
What you say would be true if he only held one bond. But in a fund, there is continual turnover of issues maturing and the money being reinvested. When interest rates are climbing, this reinvestment takes place at higher yields. This process is hastened if you are re-investing dividends, or some part of dividends.

Even in the case of one bond, it would eventually mature and if rates were rising, it would be reinvested at a higher rate. The money may be worth less, but there will be more of it.

Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Old 07-07-2013, 11:41 AM   #53
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Lsbcal's Avatar
 
Join Date: May 2006
Location: west coast, hi there!
Posts: 5,686
Quote:
Originally Posted by nun View Post
I'm looking forward to the higher interest rates that my bond funds will earn in the future. IMHO people put too much emphasis on NAV when it comes to bonds.
I don't even understand why NAV comes into the picture as it tends to be a fund byproduct. If you look at bonds, it's all about the yield and price. NAV just flows out from the constantly changing yield curves for companies and nations.

I'm no bond expert so that's just my current thoughts. When you read Bloomberg bond news, there is no talk about NAV's.
__________________
Lsbcal is offline   Reply With Quote
Old 07-07-2013, 11:51 AM   #54
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Feb 2013
Posts: 5,327
Quote:
Originally Posted by Lsbcal View Post
I'm no bond expert so that's just my current thoughts. When you read Bloomberg bond news, there is no talk about NAV's.
That could be more because of who Bloomberg's advertisers are and how much money they make from management fees from bond funds and not because they have a burning desire to write about topics with only their readers' best interest at heart.
__________________
daylatedollarshort is offline   Reply With Quote
Old 07-07-2013, 12:44 PM   #55
Full time employment: Posting here.
 
Join Date: May 2011
Location: Marco island
Posts: 813
Quote:
Originally Posted by haha
What you say would be true if he only held one bond. But in a fund, there is continual turnover of issues maturing and the money being reinvested. When interest rates are climbing, this reinvestment takes place at higher yields. This process is hastened if you are re-investing dividends, or some part of dividends.

Even in the case of one bond, it would eventually mature and if rates were rising, it would be reinvested at a higher rate. The money may be worth less, but there will be more of it.

Ha
I wonder what effect large net outflows from funds will have on the funds ability to recover from losses.i would think that if the fund is writing checks for redemptions, the less cash available to but new bonds. Any ideas?
__________________
Gatordoc50 is offline   Reply With Quote
Old 07-07-2013, 01:04 PM   #56
Thinks s/he gets paid by the post
veremchuka's Avatar
 
Join Date: Oct 2010
Location: irradiated - too close to the nuclear furnace
Posts: 1,294
Quote:
Originally Posted by Which Roger View Post
Speaking of facts, the common wisdom seems to be that interest rates are at rock bottom and have no where to go but up.

However...yesterday's 10-year treasury yield was 2.73%. As recently as May 2, the rate was 1.66%. That's a 64% increase in just two months. How can a value that's 64% higher than it was just a few weeks ago be considered rock bottom?
Common wisdom was saying this for months prior to May, the big jump has happened in the last 2 months. Looks like they were right.
__________________
veremchuka is offline   Reply With Quote
Old 07-07-2013, 01:56 PM   #57
Thinks s/he gets paid by the post
 
Join Date: Nov 2009
Posts: 3,870
Quote:
Originally Posted by Lsbcal View Post
I don't even understand why NAV comes into the picture as it tends to be a fund byproduct. If you look at bonds, it's all about the yield and price. NAV just flows out from the constantly changing yield curves for companies and nations.

I'm no bond expert so that's just my current thoughts. When you read Bloomberg bond news, there is no talk about NAV's.
Don't forget about simple supply and demand for bonds and bond funds. Back in late 2008 (when I first ERed), the price of the bond fund I bought into had dropped sharply (along with everything else). [This was a HUGE advantage for me in the start of my ER.] But the NAV of the bond fund dropped in part due to the big drop in demand for those bonds. Nobody had any new money to invest. Bond issuance back then also took a dive, but not as big as the demand.

I have a WSJ article from 11/28/2008 which explained the fall in bonds, mainly munis, but the reasoning extended beyond only munis.
__________________
Retired in late 2008 at age 45. Cashed in company stock, bought a lot of shares in a big bond fund and am living nicely off its dividends. IRA, SS, and a pension await me at age 60 and later. No kids, no debts.

"I want my money working for me instead of me working for my money!"
scrabbler1 is offline   Reply With Quote
Old 07-07-2013, 02:48 PM   #58
Dryer sheet aficionado
 
Join Date: Jun 2011
Posts: 32
NAV matters to me when I see my statements. This is the same as a stock price or equity fund.....it tells you the market value of your asset.

I also agree rates on bond funds are going up because the market value is going down.....a $100 dividend is still $100 whether it is a4% yield or 3.5% yield. It's true if you hold bond funds long enough, reinvest your dividends and interest rates stabilize you will someday catch up.

If anyone had a crystall to tell us what rates will be in a year then we could make a purely mathematical decision.
__________________
Leon44 is offline   Reply With Quote
Old 07-07-2013, 03:25 PM   #59
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Lsbcal's Avatar
 
Join Date: May 2006
Location: west coast, hi there!
Posts: 5,686
If you choose to think about bond fund's NAV's then I guess you have to also include the current SEC yield since they go together. For most Vanguard bond funds, the distributions are payed out monthly and those distributions are directly related to that yield. At that point the NAV also drops. Also there are short and long term cap gains as part of those distributions. Maybe that is what some are referring to when they only mention NAV's ?

I compute monthly total returns for my bond funds. I do use NAV data for this + distribution data. So for the month:
total return = (NAV_change + distribution)/NAV_start_of_month
So in that sense I do use NAV data too.

When Vanguard describes annual performance they don't show NAV's just:
income return + cap gain return = Total Return

Example for Total Bond Market VBTLX:

__________________
Lsbcal is offline   Reply With Quote
Old 07-07-2013, 03:59 PM   #60
Dryer sheet aficionado
 
Join Date: Jun 2011
Posts: 32
I'll use VBTLX to illustrate the point that I was trying to make:

On 1/1/2013 the NAV was $10.93 a share according to Yahoo finance historical data. It paid a dividend in January of .022 per share or 2.41% annually.

The current NAV 7/6/13 for VBTLX is $10.56 per share and still pays a dividend of .022 per share. But...now that same .022 is a 2.51% annual return.

If you have 5K shares you will receive a $110 dividend both in January and again in June.

But...the value of the holding is down -2.48% YTD. so your 5K shares loss $1,850 YTD. You received $660 in dividends through June....net loss of $1,190 YTD in VBTLX.

This is why NAV matters to me. I don't know if this is a blip in interest rates or if this will be the trend. I do know the NAV will be an indicator for me.

Nobody can deny bond funds have been great over the past, but remember we have been in a 30 year bond bull market.
__________________

__________________
Leon44 is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


 

 
All times are GMT -6. The time now is 07:26 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.