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Old 12-14-2013, 01:46 PM   #21
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Propaganda notwithstanding, why would the Fed tighten? There is no sign of an over heated anything on the horizon to cause inflation and other countries continue to try the articiallly manipulate their currency lower.

The only reason I can see them tightening is to deflate a stock market bubble.
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Old 12-14-2013, 01:48 PM   #22
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I will not put money into bonds at this time. Once we find out for sure if we are moving or not we will either need more cash.....or forget moving and the cash we have will go into stocks/CD type areas. I may adjust my tsp to include more of the G fund however.
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Old 12-14-2013, 02:58 PM   #23
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Propaganda notwithstanding, why would the Fed tighten? There is no sign of an over heated anything on the horizon to cause inflation and other countries continue to try the articiallly manipulate their currency lower.

The only reason I can see them tightening is to deflate a stock market bubble.
It's not so much as the Fed directly tightening - but the Fed slowly winding down their still on-going purchasing of treasuries to artificially depress interest rates. Once they cut back/stop their buying, the drop in demand will most probably be accompanied by a rise in interest rates to a more natural equilibrium by market forces.
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Old 12-14-2013, 03:02 PM   #24
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I buy bonds and bond funds because the alternative has been to earn 0.045% on my regular savings and about 1.26% on two year CD's. PenFed's recent 5 year CD has changed my thinking and I have transferred both regular savings funds and short-term bond fund money to some of the PenFed CD's.
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Old 12-14-2013, 03:14 PM   #25
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It's not so much as the Fed directly tightening - but the Fed slowly winding down their still on-going purchasing of treasuries to artificially depress interest rates. Once they cut back/stop their buying, the drop in demand will most probably be accompanied by a rise in interest rates to a more natural equilibrium by market forces.

It will be interesting to see where treasury rates settle. Any cutback in central bank buying will equilibrate with a trend toward less issuance as the budget deficit shrinks, as well as an interest by pension plans to immunize their balance sheets by buying very long bonds with even modest rate increases. I have no idea when buying will be cut back or where rates will settle, but I don't want to be making a big bet here with so little visibility.
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Old 12-14-2013, 03:14 PM   #26
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Originally Posted by Theduckguru View Post
Propaganda notwithstanding, why would the Fed tighten? There is no sign of an over heated anything on the horizon to cause inflation and other countries continue to try the articiallly manipulate their currency lower.

The only reason I can see them tightening is to deflate a stock market bubble.
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Originally Posted by MooreBonds View Post
It's not so much as the Fed directly tightening - but the Fed slowly winding down their still on-going purchasing of treasuries to artificially depress interest rates. Once they cut back/stop their buying, the drop in demand will most probably be accompanied by a rise in interest rates to a more natural equilibrium by market forces.
That and I don't think they really wanted to do QE but had run out of ammunition and that was about the only choice they had left so they would like to get out of that business as soon as it is prudent to do so. That said, I think the market worries too much abut the taper - the Fed will taper gradually once they sense the economy is healthy enough to withstand the gradual rise in interest rates. I trust they will get it right (or close enough).
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Old 12-15-2013, 06:57 AM   #27
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Besides the points about unpredictability and the fact that many folks thought rates would increase over the past few years I think the following point may be even more important
The function of non-equities in an AA managed portfolio is to allow for rebalancing.
If you go all equities then when equities inevitably drop you've got nothing to fund the cheap buys. That's fundamental to the returns of AA portfolios.

Perhaps non-equities could be something other than bonds- like cash or CD's.
At least that would still allow you to profit by buying during dips in equities.

Another point is that even with rates increasing bonds can offer positive returns ( interest payouts plus asset value). If the rate increases are orderly and are expected to be persistent the market prices this into the bonds (yield curve).
Vanguard has a chart that shows such returns in historical data. I cant find it.

OF course unexpected and disorderly rate increases can happen too.
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Old 12-15-2013, 11:53 AM   #28
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Anyone who thinks US equities cannot drop hard and stay down for many yrs needs to look at Japan in late '80's. Returns on the Nikkei were comfortably outpacing US market. Japan was widely viewed as THE unbeatable economic titan & predicted to overtake the US as largest equity market in world within 5-10yrs. Nikkei peaked late '89 at almost 40k, and despite recent run up (50+% this yr) it remains DOWN ~60% over past 24yrs. NOT claiming this will happen to US, but US has also had spans of >10yrs with min to neg equity returns (inc. '99-'10, '65-82, '29-55).
IMHO- There is good reason to hold AA of ST bonds other than as a parking place between "buying the dips" in equities.
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Why bonds?
Old 12-15-2013, 07:45 PM   #29
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Why bonds?

I don't like bonds either, like OP, but there are more than a few reasons to own

  • safety cushion for a market drop, for which we're overdue. I'm still bullish on equities for a couple years, but that's the roll of bonds.
  • the Fed is still fighting deflation and there is a significant chance that yields will remain low for some time. I personally think the economy finally is beginning to slowly reach lift-off, but that remains to be seen. Deflation is still the dominant.
  • as some one noted, bonds or cash are available for rebalancing after a significant market drop


With the above, I've significantly decreased duration and sold TIPS funds to lock in gains over the last two years. I haven't made anything in bonds but I haven't lost much either this year, so short-term decreasing duration 18 months ago has worked out. We'll see going forward.
I'm considering dollar cost averaging slowly into longer intermediate Treasury funds over the next two years. Since the bond duration is so low. This would be monthly and very gradual, to take advantage if interest rates do go up. (ie, Market timing).
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Old 12-15-2013, 08:44 PM   #30
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We still have our bond allocation parked in the stable value fund available in wife's 457, currently paying only 2% but I'll take it.
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Old 12-16-2013, 08:06 PM   #31
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with impending increases in interest rates over the next few years, why would anyone buy bonds or bond funds right now?
Short answer: to keep the asset allocation of one's overall portfolio on target.

Speaking of which, it's time for me to look at mine and see whether I need to rebalance or not.
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Old 12-17-2013, 01:47 AM   #32
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Originally Posted by Chuckanut View Post
I buy bonds and bond funds because the alternative has been to earn 0.045% on my regular savings and about 1.26% on two year CD's. PenFed's recent 5 year CD has changed my thinking and I have transferred both regular savings funds and short-term bond fund money to some of the PenFed CD's.
I've had the Vanguard GNMA fund forever, and it has delivered 5% returns while maintaining a price of $10 +/- $1 during almost that entire time.

Since 2008, I've reduced my holding in it from $250,000 to $52,000 (minimum for Admirals share). It is currently yielding 2.7%. So far this year it has lost 1.87%

Is there any reason to not sell the fund and transfer the proceeds into the 3% PenFed CD's? There will be a minor capital gain but I have some offsetting losses.
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Old 12-17-2013, 03:52 AM   #33
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Because I found out the hard way years ago that I can't time the market, I determined my desired asset allocation, wrote an Investment Policy Statement, implemented it, and now I intend to Stay the Course.

I'm glad I didn't have zero bonds in my accounts five years ago. Seems like there has been a constant fear of rising interest rates for much longer than that.
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Old 12-17-2013, 04:33 AM   #34
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Because I found out the hard way years ago that I can't time the market, I determined my desired asset allocation, wrote an Investment Policy Statement, implemented it, and now I intend to Stay the Course.

I'm glad I didn't have zero bonds in my accounts five years ago. Seems like there has been a constant fear of rising interest rates for much longer than that.

Actually I'd say the concern for rising interest rates started in late 2009 so 4 years, I think most of us were shell shocked in Dec 2008

I'd also in hindsight you would been much better off with 0% bonds, the returns of BND (total bond market) have been 4.39% over the last 5 years vs 17.97% for VTI, which over 5 years correspond to difference between total 23% return and 228%. You may have slept better with some bonds (I know I did) but that is ton of money to give up for good night sleep.
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Old 12-17-2013, 04:51 AM   #35
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You may have slept better with some bonds (I know I did) but that is ton of money to give up for good night sleep.[/QUOTE]

A good nights sleep - Priceless
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Old 12-17-2013, 07:53 AM   #36
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I have been investing in bond funds for more than 20 years. And since I ERed 5 years ago, the monthly dividends from them provide me with more than enough money to cover my expenses. Remember that the price (NAV) of bond funds tends to work in inverse proportion to the monthly dividend yield. So I like it when the NAV drops because I can buy new shares cheaply and those shares will generate more money every month. The ultimate bargain basement price on bond funds was back in late 2008 when the price of everything dropped (even though interest rates were not necessarily rising) and I had the chance to buy into one of them at greatly depressed prices.

About a year ago the bond fund prices were on the high side but since then they have fallen and for the first time in a while, the monthly dividend yield has begun to rise a little bit, a good development for me. I don't buy buy bond funds to make money by selling them (I rarely sell them, only in emergencies, so if I make a few bucks on the sales, great, if I lose a few bucks, no big deal), I buy them for the income they generate.
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Old 12-17-2013, 08:04 AM   #37
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Here's a recent piece that makes the case that current rates are too high and recommends buying bonds now. Crowding In

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In sum, the new-issuance pressure of bonded indebtedness at all government levels is not intense and not of the nature to drive up interest rates. Instead we have crowding in, not crowding out.


Meanwhile, the issue of inflation is being ignored by bond investors. The headline personal consumption expenditure deflator is falling. Market-based priced Core PCE is falling even more. It is trending under 1%. Core CPI is also falling. Producer Price inflation is trending at about 1%. In fact, the case can be made that the collective indicators of price level changes could all trend under at or near 1% sometime in 2014.
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Old 12-17-2013, 08:23 AM   #38
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I will not put money into bonds at this time. Once we find out for sure if we are moving or not we will either need more cash.....or forget moving and the cash we have will go into stocks/CD type areas. I may adjust my tsp to include more of the G fund however.
I don't think the G-Fund is quite the same thing as buying bonds or even other bond funds.
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Old 12-17-2013, 08:33 AM   #39
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Propaganda notwithstanding, why would the Fed tighten? There is no sign of an over heated anything on the horizon to cause inflation and other countries continue to try the articiallly manipulate their currency lower.

The only reason I can see them tightening is to deflate a stock market bubble.
Why would they try to deflate a stock market bubble? (hope that's not too "political" of a question)
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Old 12-17-2013, 09:38 AM   #40
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I don't think the G-Fund is quite the same thing as buying bonds or even other bond funds.
I know....it's better.
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