What's going on with the market?

[golden years]

Does anyone know what is going on with Vanguard Intermediate-Term Investment-Grade Fund Admiral Shares which dropped 0.10 today and -
Vanguard Intermediate-Term Bond Index Fund Admiral Shares which dropped 0.16 today also?
Should we hold on to these two bond funds or think of getting rid of them?

 

[clifp]

As interest rates rise bond funds are going to drop in value. It is anyones guess how much further they will drop in the short run. But in my opinion I'd expect at drop of at least 5% more in the next three years

 

[golden years]

As interest rates rise bond funds are going to drop in value. It is anyones guess how much further they will drop in the short run. But in my opinion I'd expect at drop of at least 5% more in the next three years

Is it possible that these two bond funds could/would drop .10 - .16 (approximately) every day for quite a while?

 

[Coolius]

Since the May Fed meeting, the specter of rising interest rates has now taken center stage.

Although no one knows when the Feds will start "tapering", fear is causing all income assets ( MLPs, ETDs, Preferred Stock, bonds, Treasuries, etc ) to go down in anticipation.

We may not see any significant rise until late 2014 or even 2015, but the market is a forward discounting structure, so people are selling and getting out now.

Further declines in individual Bonds and Bond Funds is certain, only the extent is undetermined. the risk/reward position is most decidedly on the risk side at this moment.

If you do not wish to see your funds lose another 3%-6%, and you are planning to RE soon or already RE, you may want to take a hard look whether to sell or not.

 

[Which Roger]

The market has priced in (via higher interest rates) expectations of when the Fed will start tapering, and to what extent. If those expectations are overblown (i.e., the tapering starts later than expected and/or is more gradual than what the market has already priced in), then bond interest rates may go lower and therefore bond values will increase. What everybody "knows" (in this case, that interest rates will continue to rise and bond values will continue to decline), often turns out to be incorrect. That's why we should set our asset allocations according to our risk tolerance and stay the course.

 

[LOL!]

Does anyone know what is going on with Vanguard Intermediate-Term Investment-Grade Fund Admiral Shares which dropped 0.10 today and -
Vanguard Intermediate-Term Bond Index Fund Admiral Shares which dropped 0.16 today also?
Should we hold on to these two bond funds or think of getting rid of them?

Anybody and everybody who reads a newspaper either online or in print knows what is going on. It's headline news. Here is a typical article:
http://www.nytimes.com/2013/06/29/your-money/before-dumping-bonds-consider-why-you-have-them.html
and some discussion from random folks:
Bogleheads • View topic - Bond Funds

Even though the Fed has not started tapering, people like you are slightly panicky and have started to sell. This panic selling presents opportunities for folks to make 3% in a few days in bond funds: http://thefinancebuff.com/buy-bond-etfs-at-large-discounts-to-net-asset-value-nav.html

 

[haha]

Is it possible that these two bond funds could/would drop .10 - .16 (approximately) every day for quite a while?

It has always been possible, or even likely, that any bond fund would lose value, if and when either interest rates rise or credits are impaired. People who do not know this, or cannot tolerate this, should stick to insured bank CDs.

Nobody can tell you what will happen, intermediate bond funds are just as likely to go up as go down. Bernanke may or may not be serious about the taper, and he may or may not get what he wants in any case.

You must make up your own mind. But if you or your wife are already frightened, consider selling and never again buying anything other than insured bank CDs. Don't buy stocks either, because they may also go down. I don't say this is a good idea, I would never do it. But it is a better idea than waiting until bond funds lose some more quoted value and then selling.

It is usually more comfortable to learn how these instruments work and their trading history before committing money to them, rather than after committing money.

Ha

 

[bUU]

Our financial adviser presented a chart showing the potential impact on bond fund prices from various interest rates. It was not a nasty chart, indicating to me that bond funds are likely, at some point in the near future, take approximately a 10% hit, at least. I wish I could find the chart online. It included this chart:

http://qzprod.files.wordpress.com/2012/10/rates-overtime-schrager.jpg?w=1024&h=616

The point derived from that cart was the fact that the last time we were in a situation where bond yields were increasing over an extended period of time was the 1950s, 1960s and 1970s.

And its conclusions, drawn from data from back then, were similar to this chart:

http://individual.troweprice.com/staticFiles/Retail/Shared/Images/06001-205_Table1_525x300.png

But were applicable to corporate bonds as well.

I cannot see a path forward to get out of bonds entirely, but as I mentioned here, I have recently switched a big portion of my bonds exposure from PIMCO Total Return to (bigger holdings of) Vanguard Wellesley and Wellington, because I have more confidence in those fund managers to traverse the next few years in a superior manner. However, I'm still heavily invested in Templeton Global Bond Fund, because I don't see much alternative for that portion of my allocation. I'm really at a loss what to do.

 

[obgyn65]

I checked my Vanguard bond funds and they have lost several thousand dollars since I bought them several weeks ago. However, I am happy to follow the majority of opinions and advice here, and stay the course.

Does anyone know what is going on with Vanguard Intermediate-Term Investment-Grade Fund Admiral Shares which dropped 0.10 today and -
Vanguard Intermediate-Term Bond Index Fund Admiral Shares which dropped 0.16 today also?
Should we hold on to these two bond funds or think of getting rid of them?

 

[Leon44]

If you believe like most that interest rates will increase then you need to manage your duration carefully. The current rate on the 10 year bond is now 2.71%. I have read that the average historical rate on the 10 year note is 6.61%. You can see by the chart Buu posted the effects of a one point rise in interest rates on the different durations. I haven't got out of all bond funds but I have reduced my average duration to under 3 years.

 

[enjoyinglife102]

Unless you planned on spending that intermediate bond fund money in the near term (which should not be the case in one's portfolio strategy), what has happened is you now have the opportunity to buy them at cheaper prices than a month ago if your rebalancing criteria has been met. All this trading, duration shortening, stocks as alternatives, timing "expertise", etc... will most likely do for anyone is lower their long term returns than if they developed a sound plan and stuck to it.

 

[eytonxav]

Even pssst Wellesley took it in the shorts yesterday, which makes me think it may be time to shift some of my shares over to Wellington.

 

[W2R]

Oh my, what a tiny bobble. I just checked and yesterday my 55:45 portfolio as a whole went down a whole $678 compared with the day before. It is higher than it was during most of March, and I don't recall being upset then, either.

I think that if I was worried about that drop, to the point of losing sleep, I shouldn't be retired at all.

(yawn) Good morning!

 

[pb4uski]

+1

 

[truenorth418]

Oh my, what a tiny bobble. I just checked and yesterday my 55:45 portfolio as a whole went down a whole $678 compared with the day before. It is higher than it was during most of March, and I don't recall being upset then, either.

I think that if I was worried about that drop, to the point of losing sleep, I shouldn't be retired at all.

(yawn) Good morning!

+1

 

[MichaelB]

+1 @ Mr. Ha, pb4uski and W2R

 

[REWahoo]

"What's going on with the market?"

It appears to me it's going up and down and up and down. Or is it actually going down and up and down and up? I can never keep it straight...

 

[FIREd]

Oh my, what a tiny bobble. I just checked and yesterday my 55:45 portfolio as a whole went down a whole $678 compared with the day before. It is higher than it was during most of March, and I don't recall being upset then, either.

I think that if I was worried about that drop, to the point of losing sleep, I shouldn't be retired at all.

(yawn) Good morning!

Yes, it's good to keep things in perspective. I totaled the losses from my bond funds since May 1 and they amount to 3-4 months worth of expenses. I have lost more than that in a single day on the stock market.

 

[photoguy]

Yes, it's good to keep things in perspective. I totaled the losses from my bond funds since May 1 and they amount to 3-4 months worth of expenses. I have lost more than that in a single day on the stock market.

It's not even clear to me that these are "losses" since you've gotten higher yields in return.

 

[FIREd]

It's not even clear to me that these are "losses" since you've gotten higher yields in return.

So far, I haven't seen any increase in bond fund distributions so the higher yields have not materialize yet.

 

[Spanky]

"Should we hold on to these two bond funds or think of getting rid of them?"
Where will the proceeds go? Cash? The bond market will most likely continue to be volatile until the interest rate is known. If losing sleep over the volatility is an issue, one should reduce exposure to bonds, lower duration, or shift proceeds to cash/CD. Otherwise, stay the course.

 

[explanade]

Are people doing DRIP with their bond funds?

 

[Spanky]

Are people doing DRIP with their bond funds?

All our investments including bond funds are dividend reinvested.

 

[bUU]

I just switched mine ... we're no longer reinvesting dividends in taxable accounts. (Still reinvesting in retirement accounts.)

 

[LOL!]

Are people doing DRIP with their bond funds?

Not retired yet, so yes absolutely. All bond funds are held in tax-advantaged accounts.

So who is rebalancing into bonds right now?