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Short, Medium & Long Term Bond Funds 2013
Old 01-04-2014, 02:17 PM   #1
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Short, Medium & Long Term Bond Funds 2013

Hopefully there's no one left here who doesn't recognize the risk associated with long duration bond funds when interest rates eventually increase. These fund choices aren't exactly apples to apples, I chose them for selfish reasons because I own the first two but they are short (2.3 yrs), medium (5.5 yrs), and long (14.0 yrs) duration funds. Obviously not what you expect to see long term, and thank goodness I split my fixed income holdings where I used to be solely in TBM. And this is one year with essentially no rate increase, just imagine...
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Old 01-04-2014, 02:46 PM   #2
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I've reduced my bond exposure down to 24% . All but 1% are now in short term bond funds . Hopefully this works out !
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Old 01-04-2014, 04:05 PM   #3
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Unless - long term interest rates don't move much, but the short term does. That has happened before.

You never know!!!
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Old 01-04-2014, 07:24 PM   #4
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In 2014 our AA = 60/13/27. The plan is to increase bonds by 5% per year and decrease cash (MMF + 5yrCD ladder) by 5% per year until we have a 60/35/05 portfolio.

I'm currently investigating the possibility of switching from an Ireland (offshore) PIMCO bond fund denominated in USD. It has an ER = 0.85%. Sec Yield = 1.40%. Duration = 4.4 years. Lots of leverage and derivatives.

The change would be for a new Ireland (offshore) Vanguard bond ETF that is a Great Britain government bond fund denominated in GBP. ER = 0.12%. TTM yield = 1.85%. Duration = 9.3 years. No leverage or derivatives.

I'm going to have to think about this for a while.

I don't like the long duration nor the denomination in GBP. I LOVE the cost and the fact of no leverage or derivatives.
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Old 01-04-2014, 07:42 PM   #5
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I go TBM and have about 40% with a long term perspective.

Just rebalanced and a few days ago from the upshot in equities last year.
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Old 01-04-2014, 10:56 PM   #6
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What would normally be in domestic bonds for me is currently in MM funds. Only bonds are domestic high yield and international bond funds. I'm not sure what I will do.

Tempted to stand pat or to value average into iShares 2020 Corporate target maturity bond fund over 6-12 months.
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Old 01-05-2014, 01:30 AM   #7
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The 30-yr Treas. has been inching up since summer of 2013, and is up to 4% now. The 5-yr rate used to be below inflation (crazy bidders!), but is above it now.

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Old 01-05-2014, 05:28 PM   #8
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I'm 50% in FI. Vanguard short term investment grade and intermediate term investment grade and stable value in my 401k. The ITIG fund makes me nervous, the STIG not so much. Since I reinvest dividends in both and have no distributions planned until 70 1/2, the ITIG fund's duration may not be a problem as that's a bit beyond the 5-6 years of the ITIG fund and RMD.
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Old 01-05-2014, 06:04 PM   #9
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I have a fairly large portion of my portfolio in a rollover IRA invested in PGBOX. Is that an example of a "bad" bond fund when rates go up? I put the money there because I thought it was far more conservative than anything involving equities. Now i'm not so sure.
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Old 01-05-2014, 06:26 PM   #10
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My bond allocation is split up as follows: 30% Stable Value fund. 20% ST US Treasury, 30% Target maturity 2014, 2015, 2016 IShares Muni ETF's, 20% Vanguard Intermediate Muni ETF. Weighted maturity about 2.5 years.
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Old 01-05-2014, 06:45 PM   #11
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My "non-equity" allocation is Fidelity Total Bond 80%, Fidelity Capital and Income 13% and Fidelity Floating Rate High Income 7%. A little too high on junk but has worked out well for me.

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Old 01-05-2014, 07:24 PM   #12
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Cross posting? Meant for this thread What's Your Non-Equity Portfolio Look Like?
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Target AA: 60% equity funds / 35% bond funds / 5% cash
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
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Old 01-05-2014, 07:44 PM   #13
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Originally Posted by Midpack View Post
Cross posting? Meant for this thread What's Your Non-Equity Portfolio Look Like?
Didn't see that thread; actually only reason i said "non-equity" instead of "bond" was that some don't consider Fid Cap & Inc or Floating Rate bond funds.

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Old 01-05-2014, 07:56 PM   #14
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Originally Posted by aaronc879 View Post
I have a fairly large portion of my portfolio in a rollover IRA invested in PGBOX. Is that an example of a "bad" bond fund when rates go up? I put the money there because I thought it was far more conservative than anything involving equities. Now i'm not so sure.
I look up PGBOX, and see that it is has a relative short duration of around 5 years. So, that's not too bad.

Yes, there is really nothing absolutely safe. Some people think that if they hold individual long bonds to maturity, they do not lose money. Well, the cumulative inflation in the past 14 years from Jan 2000 to Jan 2014 is 40%, and we even had two recessions and a deflationary period in that time interval. Hate to think what it would be in a "normal" period.

Well, I just looked up the preceding 14 years. From Jan 1986 to Jan 2000, the cumulative inflation was 54%. It was not as bad as I thought.

Surely, you get back your original principal with individual bonds eventually, but it will be worth 65c on the dollar. You pay the piper now with bond MFs or you pay him later with individual bonds.

On the other hand, perhaps the long interest rate will turn around and dips into deflation like some people say, despite the chart I posted earlier about it trending up lately, and bonds will ride high again. One never knows, and maybe these people will be proven right, though I have my doubt.
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Old 01-06-2014, 10:43 AM   #15
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For my own purposes I analyzed a few bond fund's performance during the last rate rise starting in Jan 2003. The yield difference (spreads) between 5yr and 2yr Treasuries were almost the same as now. The absolute yields were about 1.4% higher though.

Here is how things worked out for Vanguard Short Term IG (VFSUX), Vanguard Total Bond Mkt (VBTLX), and Pimco Total Return (PTTRX). Also should mention that Prime Money Market returned just -0.3% real during this time period and Dodge & Cox Income (DODIX) behaved almost identically to PTTRX.

This chart is a bit cluttered, sorry:



Of course, no guarantees history will be similar.
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Old 01-06-2014, 06:27 PM   #16
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Lsbcal - Would you be willing to add the 10yr to 2yr (or 10 yr to 5yr) spread on your beautiful graph? I've been wanting to know how the 10yr treasury historically behaves with respect to the 5 yr.
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Old 01-06-2014, 07:07 PM   #17
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I look up PGBOX, and see that it is has a relative short duration of around 5 years.
I'd consider 5-9 years as intermediate duration. NOTHING is safe even treasury notes/bonds and treasury bond funds have risk - interest rate risk and funds also manager risk.
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Old 01-06-2014, 07:10 PM   #18
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Here is the graph with the 10yr - 2yr spread added. Also I show DODIX (Dodge & Cox Income) instead of VBTLX (VG Total Bond Mkt).




and here is a picture of some the 3mo, 2yr, 5yr Treasury yields:

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Old 01-06-2014, 07:21 PM   #19
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I'd consider 5-9 years as intermediate duration. NOTHING is safe even treasury notes/bonds and treasury bond funds have risk - interest rate risk and funds also manager risk.
So what are we taking about here? When rates rise, an intermediate-term fund will fall how far? 5%/yr,10%/yr? Even in bad years a bond fund won't fall 20%+ like equities, right?
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Old 01-06-2014, 09:42 PM   #20
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So what are we taking about here? When rates rise, an intermediate-term fund will fall how far? 5%/yr,10%/yr? Even in bad years a bond fund won't fall 20%+ like equities, right?
An hour of basic reading on the internet will explain these things for you.

Ha
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