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Re: Short Term vs. Intermd Term Bonds
07-20-2006, 03:14 PM
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#21
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Full time employment: Posting here.
Join Date: Feb 2004
Location: Okanagan Valley
Posts: 808
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Re: Short Term vs. Intermd Term Bonds
Quote:
Originally Posted by TromboneAl
I decided to move my short-term bond money to the total bond index fund, and did it today.* Note that the average duration of the total bond fund is 4.8 yrs vs. 5.9 for the intermediate bond fund.
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What was the difference in current yield between total and intermediate if you have those numbers handy?
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Re: Short Term vs. Intermd Term Bonds
07-20-2006, 03:28 PM
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#22
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Thinks s/he gets paid by the post
Join Date: Feb 2005
Posts: 2,032
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Re: Short Term vs. Intermd Term Bonds
Quote:
Originally Posted by AltaRed
What was the difference in current yield between total and intermediate if you have those numbers handy?
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Short Term Bond Index - Current yield 5.32% Duration 2.5
Total Bond Market Index - Current Yield 5.31% Duration 4.8
I will hold my comment on what I think of that trade
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Re: Short Term vs. Intermd Term Bonds
07-20-2006, 03:30 PM
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#23
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2003
Posts: 18,085
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Re: Short Term vs. Intermd Term Bonds
Quote:
Originally Posted by saluki9
Short Term Bond Index - Current yield 5.32%
Total Bond Market Index - Current Yield 5.31%
I will hold my comment on what I think of that trade* *
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Yeah, yeah. But the point isn't yield. Its total return.
__________________
"All animals are equal, but some animals are more equal than others."
- George Orwell
Ezekiel 23:20
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Re: Short Term vs. Intermd Term Bonds
07-20-2006, 03:34 PM
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#24
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Thinks s/he gets paid by the post
Join Date: Dec 2003
Posts: 4,459
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Re: Short Term vs. Intermd Term Bonds
Quote:
Originally Posted by brewer12345
Yeah, yeah.* But the point isn't yield.* Its total return.
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In a rising rate environment? OMG!!!1!
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Re: Short Term vs. Intermd Term Bonds
07-20-2006, 03:38 PM
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#25
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Thinks s/he gets paid by the post
Join Date: Feb 2005
Posts: 2,032
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Re: Short Term vs. Intermd Term Bonds
Quote:
Originally Posted by brewer12345
Yeah, yeah. But the point isn't yield. Its total return.
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WARNING!!! OPINIONS FOLLOW:
In my professional experience, predicting future interest rates ranks somewhere between predicting winning lottery numbers and guessing how much congress is going to spend next year
In other words, I think it's a waste of time. Therefor my best estimate of future fixed income returns are the current yield. Henceforth taking almost twice the risk for the same return doesn't rank as a wise decision in my book.
OMG I was only able to keep my opinion to myself for 16 minutes
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Re: Short Term vs. Intermd Term Bonds
07-20-2006, 03:41 PM
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#26
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Thinks s/he gets paid by the post
Join Date: Dec 2003
Posts: 4,459
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Re: Short Term vs. Intermd Term Bonds
Hey, bond guys.* What's your opinion of TIPS vs nominal bonds right now?* *Seems like a no-brainer to me.* *Even the 5-year TIPS seems to have a large premium over nominals, and I really don't understand why.* *The embedded inflation estimate has been low for 2 years now.* *Does the market expect inflation to go to zero over the next 3 years?
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Re: Short Term vs. Intermd Term Bonds
07-20-2006, 03:53 PM
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#27
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Thinks s/he gets paid by the post
Join Date: Feb 2005
Posts: 2,032
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Re: Short Term vs. Intermd Term Bonds
Quote:
Originally Posted by wab
Hey, bond guys. What's your opinion of TIPS vs nominal bonds right now? Seems like a no-brainer to me. Even the 5-year TIPS seems to have a large premium over nominals, and I really don't understand why. The embedded inflation estimate has been low for 2 years now. Does the market expect inflation to go to zero over the next 3 years?
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You might see that estimate of future inflation moderate even more in the near future as we've seen growth slowing a little bit
On the 6 month bills i'm showing an estimated CPI of 2.588% and it narrowing to 2.34% on the 5 year.
2.34 isn't zero, but it's heading in that direction
Also, please read my comment above about predicting interest rates
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Re: Short Term vs. Intermd Term Bonds
07-20-2006, 03:59 PM
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#28
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Thinks s/he gets paid by the post
Join Date: Dec 2003
Posts: 4,459
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Re: Short Term vs. Intermd Term Bonds
Quote:
Originally Posted by saluki9
On the 6 month bills i'm showing an estimated CPI of 2.588% and it narrowing to 2.34% on the 5 year.*
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Right, but the market has been making that same prediction now for a couple years.* *Even when inflation has been in the 4%+ range.* *That's what I don't get. I figure the past prediction will only be true if future inflation is way lower than the current prediction.
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Re: Short Term vs. Intermd Term Bonds
07-20-2006, 04:26 PM
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#29
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Recycles dryer sheets
Join Date: May 2006
Posts: 465
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Re: Short Term vs. Intermd Term Bonds
Quote:
Originally Posted by AltaRed
What was the difference in current yield between total and intermediate if you have those numbers handy?
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Short Term Bond Index - Current yield 5.32% Duration 2.5 Avg Return (10 yr) 5.09%
Intermediate Term Bond Index - Current yield 5.57%* Duration 5.9* Avg Return (10 yr) 6.41%
Total Bond Market Index - Current Yield 5.31% Duration 4.8 Avg Return (10 yr) 5.93%
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Re: Short Term vs. Intermd Term Bonds
07-20-2006, 07:45 PM
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#30
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Full time employment: Posting here.
Join Date: Oct 2003
Posts: 961
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Re: Short Term vs. Intermd Term Bonds
Quote:
Originally Posted by saluki9
WARNING!!! OPINIONS FOLLOW:
In my professional experience, predicting future interest rates ranks somewhere between predicting winning lottery numbers and guessing how much congress is going to spend next year
In other words, I think it's a waste of time. Therefor my best estimate of future fixed income returns are the current yield. Henceforth taking almost twice the risk for the same return doesn't rank as a wise decision in my book.
OMG I was only able to keep my opinion to myself for 16 minutes
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I definitely agree that it's a waste of time to predict interest rates.
However, I don't think that the intermediate term bonds are necessarily twice the risk. I think it depends on an investors time horizon.
For example, for investors who need the money next week, ST bonds, Tbills, or MM funds are definitely "less risky" than IT and LT bonds. However, for someone who is investing for money need [read: liabilities] 5, 10, 20, or 30 years in the future, Longer Term bonds are "less risky" than ST bonds, Tbills, or MM funds. Hence, insurance companies use LT bonds to match liabilities. We can also do the same. For our real LT liabilities, we can use LT TIPS, and for LT nominal liabilities we can use LT nominal bonds.
- Alec
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Re: Short Term vs. Intermd Term Bonds
07-21-2006, 05:59 AM
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#31
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2003
Posts: 18,085
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Re: Short Term vs. Intermd Term Bonds
Quote:
Originally Posted by wab
In a rising rate environment?* *OMG!!!1!*
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Umm, check the longer end of the curve (5 to 30 years) over the past few months. It is down.
FWIW, I think the TBM Index is likely to be a better choice for a portfolio that includes equities and some commodities exposure. Why? you get closer to the efficient frontier. If rates move up, commodities are likely doing well and stocks may be, while bonds are falling. If rates are flat, commodities , stocks likely up, bonds flat. If rates fall, commodities down, stocks , bonds up. But you don't get these offsetting less-than-perfectly correlated moves with short paper, only medium and long term bonds.
__________________
"All animals are equal, but some animals are more equal than others."
- George Orwell
Ezekiel 23:20
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Re: Short Term vs. Intermd Term Bonds
07-21-2006, 06:19 AM
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#32
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Thinks s/he gets paid by the post
Join Date: Aug 2005
Posts: 1,375
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Re: Short Term vs. Intermd Term Bonds
For those who still wonder why the average bloke sits quivering in a corner instead of managing their portfoilio, it's the conflicting and confusing advice...slice & dice (and which flavor?) VS slice & dice is "dead" VS value/small cap/foreign is the thing VS now it's time for growth or Dow or dogs of the DOw or CANSLIM or technical analysis VS the current hot newsletter OR last year's hot newsletter OR the best newletter over the past 3/5/10/15 years VS Jim Cramer or Jim Jubak or some other Jim VS Ben Stein this month OR Ben Stein last month VS trust my broker VS it's a stockpicker's market VS move to cash or commodities or real estate or oh-my-gog-get-out-of-real-estate-NOW! VS pssst Wellesley or Lifestrategy or Target Retirement or Dodge & Cox or Vanguard or Fidelity...get short-term bonds/intermediate bonds/individual bonds/TIPS/I-Bonds/MM accounts or funds/CD ladders...it's time to get out VS time to get in. And if you change your mind in a taxable account, there's taxes to worry about. And you're stupid and will be eating cat food if you get it wrong...so just buy a new truck and a big screen TV with surround sound and have faith in the future, it's happy hour in America!
__________________
You can't always get what you want, but if you try sometimes, you might find you get what you need.
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Re: Short Term vs. Intermd Term Bonds
07-21-2006, 06:26 AM
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#33
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2003
Location: Kansas City
Posts: 7,968
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Re: Short Term vs. Intermd Term Bonds
Hmmm
And people wonder why Bogle sometimes comes across as a grumpy old man - toiling in the wilderness.
heh heh heh heh heh heh heh - So what's new out there other than PCRIX to counterbalance my TBM and MM?
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Re: Short Term vs. Intermd Term Bonds
07-21-2006, 06:28 AM
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#34
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Moderator Emeritus
Join Date: Feb 2006
Location: San Francisco
Posts: 8,827
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Re: Short Term vs. Intermd Term Bonds
Quote:
Originally Posted by astromeria
For those who still wonder why the average bloke sits quivering in a corner instead of managing their portfoilio
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That is one of the funnier posts I've read in a long time. You outta write a column.
__________________
Rich
San Francisco Area
ESR'd March 2010. FIRE'd January 2011.
As if you didn't know..If the above message contains medical content, it's NOT intended as advice, and may not be accurate, applicable or sufficient. Don't rely on it for any purpose. Consult your own doctor for all medical advice.
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Re: Short Term vs. Intermd Term Bonds
07-21-2006, 06:41 AM
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#35
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2003
Posts: 18,085
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Re: Short Term vs. Intermd Term Bonds
Quote:
Originally Posted by unclemick2
Hmmm
And people wonder why Bogle sometimes comes across as a grumpy old man - toiling in the wilderness.
heh heh heh heh heh heh heh - So what's new out there other than PCRIX to counterbalance my TBM and MM?
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DJP as an alternative to PCRIX, for one thing. I also like a slug of high grade, non-USD bonds.
__________________
"All animals are equal, but some animals are more equal than others."
- George Orwell
Ezekiel 23:20
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Re: Short Term vs. Intermd Term Bonds
07-21-2006, 07:58 AM
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#36
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Thinks s/he gets paid by the post
Join Date: Feb 2005
Posts: 2,032
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Re: Short Term vs. Intermd Term Bonds
Quote:
Originally Posted by ats5g
For example, for investors who need the money next week, ST bonds, Tbills, or MM funds are definitely "less risky" than IT and LT bonds. However, for someone who is investing for money need [read: liabilities] 5, 10, 20, or 30 years in the future, Longer Term bonds are "less risky" than ST bonds, Tbills, or MM funds. Hence, insurance companies use LT bonds to match liabilities. We can also do the same. For our real LT liabilities, we can use LT TIPS, and for LT nominal liabilities we can use LT nominal bonds.
- Alec
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What you have said is correct for pension funds and insurance companies. However, this discussion is concerning bond funds. If you have the capital, you certainly can immunize your FIRE portfolio simply by buying zero coupon long bonds and waiting out the peaks and valleys. However, you will not accomplish the same thing buying a long bond fund becuase unlike your portfolio of actual bonds the maturity and duration of the fund will stay the same over time. In addition, most funds aren't just buy and hold, so the safety you get by holding the bonds to maturity also will not be realized.
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