bonds phew!

[mathjak107]

what a pounding the bond markets been getting. it really makes you think about whether bonds really are conservative. i looked today at tlt long term treasuries fund. down an amazing 2% at one point. fnmix fidelity new market income down 1.5% . even agg bond index was off almost 1% . thats like the dow falling 100+ points. well the good news is this should really drive the housing market into the ground if it goes higher and we are getting ready to buy our future retirement palace.

 

[d]

bonds have lost many folks much money over the years ... i don't think many appreciate the risk.

 

[teejayevans]

what a pounding the bond markets been getting. it really makes you think about whether bonds really are conservative. i looked today at tlt long term treasuries fund. down an amazing 2% at one point. fnmix fidelity new market income down 1.5% . even agg bond index was off almost 1% . thats like the dow falling 100+ points. well the good news is this should really drive the housing market into the ground if it goes higher and we are getting ready to buy our future retirement palace.

Lets see, bonds are down, stocks are down, reits are down...
I might have to pick up the book mention in the other thread about
the coming apocalypse
TJ

 

[dex]

There is a sale going on and you're complaining?

 

[FIREd]

I had switched my bond funds from long to intermediate term a few months ago. They still got hammered today but they're down only about 0.35 to 0.70%. Compared to my REITs (down about 3%, ouch) and equity MFs (down about 1.8% on average), it's nothing. So in fact, the bonds in my portfolio did cushion the fall which is exactly what I am asking them to do. I wouldn't say that bonds aren't risky, because it is certainly not the case, but I still think they are a more conservative investment (well it depends on credit quality and duration I suppose).

 

[dex]

I look at the currency markets and if that market believed the this bond move the dollar would have strengthened significantly; but it hasn't. Look at a chart.

So I'm guessing this is shaping up to a buying opportunity in bonds at least. I think I'll put a few $ into Vanguard Investment Grade bonds.

Let's not also forget it is the summer.

 

[Billy]

what a pounding the bond markets been getting. it really makes you think about whether bonds really are conservative

This is exactly my point, and why we remain 100% equities.

Billy
RetireEarlyLifestyle.com

 

[ESRBob]

It's not so much that bonds 'aren't risky', but that they tend to dampen the movements of the portfolio overall, reducing the volatility or 'risk' in the portfolio. Of course, when interest rates go up, bonds and stocks both get hammered, at least for a little while.

Then you realize that interest rates are going up because every economy in the world is going gangbusters right now, and capacity is tight, inflation is the worry.... because every company is selling like crazy with no real end in sight, and you realize that strong corporate profits should lead to stronger stock values one of these days, and then you yawn, stretch, and go back to whatever you were doing. In my case, it's welding -- I just got an oxy-acetylene welding rig today and started burning up the garage -- good fun! Should come in handy for mounting my ceramic sculptures or even making some metal abstract pieces one of these days...

 

[runchman]

Well ESRBob, you must then check out the welding forum. Here's a link to a 'tadpole' trike I'm welding up for my daughter:

a bike I've been working on forever - WeldingWeb™ - Professional Welding Forum

Oxy-acetylene is fun stuff. (although my bike project is tig)

- John

 

[bpp3]

Since when is 1-2% considered a "pounding"? If that seems big for you for bonds, then I think that in itself demonstrates that they are conservative relative to stocks, for which that level of volatility would be considered daily noise.

 

[audreyh1]

Well, it's ABOUT TIME! None of the long-term rates should have been trading below 5.25%, the current fed funds rate. That situation is extremely unusual.

The only reason it has, is that everyone has been expecting an imminent lowering of the Fed Funds rate.

Folks are finally realizing that this won't be happening any time soon. The economy is too strong for lowering interest rates.

So, IMO this is a situation "normalizing" itself.

Bonds will be "better value" now - LOL! This will probably hurt equities a little too in the short term - at least take out some of the "fluff".

Audrey

 

[mathjak107]

1 to 2% in a day, which is what happened the other day is enourmous for bonds. its the same as the 200 point drop in the dow, tlt index was down almost 2, agg bond index was down almost 1.75

 

[bpp3]

1 to 2% in a day [...] is enormous for bonds.

I guess what I'm trying to say is that this fact tells me that bonds are, indeed, conservative. Not risk-free (for that go to savings bonds or government-insured CDs), but definitely conservative.

 

[d]

None of the long-term rates should have been trading below 5.25%, the current fed funds rate.

i disagree. while it is not usual, it is understandable. the long and short ends of the market are in fact different markets, catering to different needs. the short end is heavily influenced by the Fed, but the long end is not. (indeed, when it is influenced, it is often in the unanticipated direction as the long end reacts to the expected inflation premium, which is directionally opposite of FedFunds moves.) further, the long end is much more sensitive to international rates than is the short end.

 

[greg]

Either an owner or a lender be--but maybe not both.

This is a bit old and may have been posted elsewhere (if so, I'm sorry). The other day Bill Gross mentioned on CNBC that he thought the bond bull market may be over. I found this related article on the PIMCO site:



PIMCO Bonds - Investment Outlook- May/June 2007 "How We Learned to Stop Worrying (so much) and Love 'Da Bomb'"

Here's another article from the dark side:

Safe Haven | What's the Deal with Bond Yields?

 

[clifp]

I found that my portfolio high-yielding dividend stocks, decline less than the S&P 500 but also less than my GNMA bonds and only slightly more than my TIPs bonds.

 

[mathjak107]

I guess what I'm trying to say is that this fact tells me that bonds are, indeed, conservative. Not risk-free (for that go to savings bonds or government-insured CDs), but definitely conservative.

right now the long bond is down about 4% for the year . its eaten thru all the interest you would have gotten plus another 2% or so. if you take the fact that it was actually up for the year a few months ago the losses are approaching 6%. . mortgage securities funds did almost as bad. only junk bonds are doing okay at this point .

i have 2 bond funds that are actually beating a money market. my fidelity floating rate loans and new market income

 

[HFWR]

There is a sale going on and you're complaining?

My sentiments exactly. I had some spare cash in the 401k, so I bought TIP at 98.12, upping bonds to 35% of the port. Of course, the cash/MM er was 1.0%, so I was already planning to put it to work when it seemed prudent.

You know what this means; interest rates are heading even higher...

 

[audreyh1]

right now the long bond is down about 4% for the year . its eaten thru all the interest you would have gotten plus another 2% or so. if you take the fact that it was actually up for the year a few months ago the losses are approaching 6%. . mortgage securities funds did almost as bad. only junk bonds are doing okay at this point .

A very good reason to avoid long bonds. For asset allocation purposes, it's best to keep in the short to intermediate duration range.

All my bond funds are still positive year-to-date. The shortest duration one is still up 1.6% YTD.

I look forward to adding to my bond funds when the 5-yr treasury reaches 5.25%.

Audrey

 

[mathjak107]

my benchmark is my money market funds which are around 2.4 ytd. my 2 bond funds are ahead slightly. i do believe in getting in bonds early if your going to reap any capital gains but i think even at this point its a little to early. geesh bill gross sees 6.5% on the long end as an eventual possibility.

 

[ziggy29]

Anyone who is in a long-term bond fund is taking it in the shorts.

I avoid long bonds in my asset allocation completely. Bill Bernstein has demonstrated that there is very little additional return in long maturities over short maturities, and not nearly enough additional return to justify the significantly higher risk.

I tend to keep my bond fund allocation in funds with less than five year weighted average maturities, and 2-3 years would be most preferable to me. The NAV of my bond funds are down only about 1.2% from the start of the year, meaning after interest payments my bond holdings are still positive for the year to date.

 

[AltaRed]

I agree the long term bull bond market is over. That was always a vestige of the highly inflationary '70s and '80s. Anyone who bought 30 year bonds then and held have been laughing all the way to the bank. Now that those are all expiring, it is a different world.

With the turn in short term rates from a bottom in 2003 and long term bond yields falling below 5% for the last several years, bond yields have nowhere to go but up...and that means face value depreciation for the foreseeable future. Bonds are still the place to be for a good portion of your FI component to smooth volatility especially nearing, or into retirement, but shorter durations are essential. I would not go longer than a 5 year ladder (average duration 2.5 years) for the foreseeable future and would not suggest anyone go longer than a 5 year weighted average duration in one's FI component at any time.

 

[FIREd]

right now the long bond is down about 4% for the year . its eaten thru all the interest you would have gotten plus another 2% or so. if you take the fact that it was actually up for the year a few months ago the losses are approaching 6%

Bonds are down, so what? If stocks give up all their YTD returns in the next few weeks (like they did during last year's correction) should we bail out on them and avoid investing in them in the future? Bonds like stocks can go up or down. It does not mean they are bad investments. They are cyclic just like stocks. Personally I like intermediate bonds because they combine the advantages of short and long bonds. They are less volatile than long bonds but have higher yield than short bonds. All my bond funds are still up 1-6% YTD according to quicken.

 

[brewer12345]

A very good reason to avoid long bonds. For asset allocation purposes, it's best to keep in the short to intermediate duration range.

Maybe. If we the Fed overdoes its tightening and pushes us firmly into recession, you will wish you had bought the longer duration bonds.

Best to look at this in the context of an overall portfolio.

 

[Alan]

Maybe. If we the Fed overdoes its tightening and pushes us firmly into recession, you will wish you had bought the longer duration bonds.

Best to look at this in the context of an overall portfolio.

I agree.

I have most of my bonds in Wellesley in IRA's so I can't really see what is going on in the bond portion, but in my 401(k) I have Scwab Total bond and the 401(k) website provides personal performance figures ytd and it is 0.5% for me. I also have VG Tax Exempt Inter. Term Muni's and ytd ROI is -0.3% for me.

If this a "pounding" then I can take it, particularly since I have no intention to sell any bond mutual funds for some years yet.