bonds at the bottom

[tightasadrum]

With bonds most likely at the end of their winning streak, I mean, how much lower could interest rates go, I've given some thought about changing a couple of bond funds to dividend paying equity funds next week. I think even the immortal Wellesley Fund may be in NAV peril in the next year or two. Anyone else contemplating a similar move?

 

[RockyMtn]

been lightening up on my bond AA over the last couple of months. Interest rates have nowhere to go but up which will whack the NAV and the yields are just miserable. Been sliding some $$$ into VIG, VYM and SCHD. Loving my KMP too!

 

[foxfirev5]

Looks like quite few people have gone this route already. The Vanguard High Dividend Yield Fund is up about 11% for the year.

 

[brewer12345]

Never say never. Look at Japanese 10 year rates...

That said, I would not be wildly eager to own treasuries or high grade corporates of any significant duration right now. Sliding over to junk, I bonds, bank loans, etc., but still feel compelled to keep a little.

 

[pb4uski]

Weren't many saying the exact same things a year ago?

But hasn't the Fed said that they intend to try to hold interest rates at current levels for 2012 (and maybe even 2013 IIRC)?

 

[sheehs1]

pb4uski...I was getting ready to post the same thing but you beat me to it. There was much discussion about rates remaining where they are thru 2012.....into 2013 and some were saying they would not rule out going into 2014. I'm not getting out of bond funds yet. But I may not put anymore to work in them either. Don't know.

 

[Lsbcal]

Is anyone saying anything here that the bond market doesn't already take into account?

I'm not saying I disagree with anyone either. You want my personal opinion? Nah, it's already been discounted I'm afraid.

 

[W2R]

Weren't many saying the exact same things a year ago?

Yes, and it seems to me they were saying the exact same things 2-3 years ago. Timing this market has been pretty difficult.

 

[Packman]

I'm selling some muni's and moving to high yield bonds. I still need to maintain some allocation to bonds, even if interest rates eventually go up. Otherwise where else would you place funds other than stocks and cash?

 

[brewer12345]

I'm selling some muni's and moving to high yield bonds. I still need to maintain some allocation to bonds, even if interest rates eventually go up. Otherwise where else would you place funds other than stocks and cash?

There are alternatives. As an example, I use merger arbitrage funds as a low volatility investment that has limited correlation with equity markets as a stand in vs. more bonds. I know of two such mutual funds: MERFX and ARBFX.

 

[kevink]

With bonds most likely at the end of their winning streak, I mean, how much lower could interest rates go

YTD return on 20+ year Treasuries (TLT) = 29.33%. Even short term bonds (e.g. 1-3 year Treasuries) trounced the S & P, and this has been a regular occurrence these past few years while the bond "experts" say rates have nowhere to go but up.

Predicting interest rate moves is clearly even more of a fool's errand than equity market predictions. Regarding Wellesley the only issue I see is it is actively managed which introduces unnecessary expenses and risk vs. an index fund or ETF no fat tails equivalent such as 70% total stock market 30% 5 year Treasuries.

 

[soupcxan]

Everytime a bell rings, a dirty market timer gets his wings...

 

[brewer12345]

Everytime a bell rings, a dirty market timer gets his wings...

Could be. Personally, I just do not like the odds when an asset class moves to valuation extremes. I would not go to the point of shorting such a market, but my instinct is to back away cautiously.

 

[NW-Bound]

Yes, market timing is difficult. However, market corrections usually take longer to happen than most people think. When even the bearish pundits have to shut up while the bulls make victory dances, that is usually the respective market top.

Here's an example about the recent housing bust. I remember seeing in 2005 an interview with the CEO of a large national house builder. The reporter asked him if his business was having any sign of slowing down. His confident reply was the following.

"People keep asking me this same question. It is the same as being asked if you beat your wife! Never have, never will."

And they proceeded to produce another stellar quarter earning. Well, we all know what happened next.

I am staying with my course: more equities and short-term cash than bonds.

 

[clifp]

2012 will be the year the government bond market starts to correct.

I have been making this prediction for 3 years now, I am sure the 3rd time is the charm.

Of course I am seldom in doubt, but often wrong on such matters

 

[Lsbcal]

2012 will be the year the government bond market starts to correct.

I have been making this prediction for 3 years now, I am sure the 3rd time is the charm.

Of course I am seldom in doubt, but often wrong on such matters

Join the club (of which I'm an officer)!

 

[Nords]

Yes, and it seems to me they were saying the exact same things 2-3 years ago. Timing this market has been pretty difficult.

2012 will be the year the government bond market starts to correct.
I have been making this prediction for 3 years now, I am sure the 3rd time is the charm.
Of course I am seldom in doubt, but often wrong on such matters

Mortgage rates can't possibly get any lower and I'm not going to refinance any of our properties ever again.

And this time I really, really, really mean it.

 

[Spanky]

2012 will be the year the government bond market starts to correct.

I have been making this prediction for 3 years now, I am sure the 3rd time is the charm.

Of course I am seldom in doubt, but often wrong on such matters

Eventually you will be correct.

 

[eytonxav]

I just don't see how interest rates are going to rise much at all given the unemployment rate. I can understand some tweaking of bond allocations, shortening durations, and diversifying but abandoning bonds in a major way doesn't make sense to me. Especially considering the uncertainty in Europe, Iran, Gov't gridlock, and who knows what other 2012 black swan will come along.

 

[clifp]

I just don't see how interest rates are going to rise much at all given the unemployment rate. I can understand some tweaking of bond allocations, shortening durations, and diversifying but abandoning bonds in a major way doesn't make sense to me. Especially considering the uncertainty in Europe, Iran, Gov't gridlock, and who knows what other 2012 black swan will come along.

Well that is what makes markets. At least one of us will be right next year.

 

[RAE]

I just don't see how interest rates are going to rise much at all given the unemployment rate. I can understand some tweaking of bond allocations, shortening durations, and diversifying but abandoning bonds in a major way doesn't make sense to me. Especially considering the uncertainty in Europe, Iran, Gov't gridlock, and who knows what other 2012 black swan will come along.

I agree. There was an article on the Bloomberg BusinessWeek website the other day that said essentially the same thing. They felt that the situation in Europe, in particular, would put a damper on rates rising much in the forseeable future.

 

[veremchuka]

The only thing harder to time than the equity market is the bond market!

I'm selling some muni's and moving to high yield bonds. I still need to maintain some allocation to bonds, even if interest rates eventually go up. Otherwise where else would you place funds other than stocks and cash?

I'd hardly consider HY bonds a fixed income allocation! They behave more like equities than fixed income and just when you need the stability of bonds you get the risk of equities! HY bonds are junk, they are called that for a reason. Yes, the yield is typically much better than govt or corporate bonds/bond funds but there's no free lunch and that better yield (not return!) is due to more risk. YYMV.

 

[DesertDweller]

Even if bonds are at the bottom...

Rick Ferri has posted an interesting two-part article ("Fears of Soaring Rates are Overblown") on this issue on his Web site (Rick Ferri).

 

[brewer12345]

The only thing harder to time than the equity market is the bond market!



I'd hardly consider HY bonds a fixed income allocation! They behave more like equities than fixed income and just when you need the stability of bonds you get the risk of equities! HY bonds are junk, they are called that for a reason. Yes, the yield is typically much better than govt or corporate bonds/bond funds but there's no free lunch and that better yield (not return!) is due to more risk. YYMV.

There are good times to buy junk and bad times. There are good junk bonds to buy and bad ones. But for people who can do credit analysis, there is the opportunity to make very nice money in the junk market from time to time.

 

[HF63]

Hola Brewer,
Have you consider the age of the population. The older we get, we normally decrease our expenses and this proabably last until our final time. Been latino, I know that my friend's do not care about the stock market and the number of investors will probably decrease in the US has the latino population grows. No scientific study, just my personal observation from my circle of amigos/ friends.