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Old 06-04-2016, 06:39 PM   #61
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Location: Rio Grande Valley
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I'm not surprised that interest rates have dropped (again!), and long bonds appreciated the most.

But, personally, I prefer intermediate bonds because they are less volatile and catch up with inflation faster. I'm inclined to believe there is a much reduced chance of deflation in the next few years.

The longest position I have is now down to 6.2 years average maturity, the FTABX municipal bond fund. I think it used to be 7 years or more. Most of my bond funds are 5 or under.

Munis have done quite well over the past couple of years. I've found they add nice diversification to my other bond holdings.

Retired since summer 1999.
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Why I have a portion of long term bonds
Old 06-05-2016, 08:35 AM   #62
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Why I have a portion of long term bonds

For those not versed in history (and I wasnt with this specific info, myself) with bond market manipulation still in force world wide, dont assume any inflation will cure the low interest rate cycle....Yes inflation can climb significantly higher and treasuries stay very low.
As a writer from Seeking Alpha "South Gent" (my favorite writer) wrote below.....
Also, the period from 1941 to 1951 is very instructive on how the FED can manipulate rates down even as inflation soars. The problem is that this approach launched a 32 year bear market cycle in bonds. That bear started with what I call a rate normalization process after the FED ceased its intervention in the market's rate setting.

CPI Annual Rates:

1941 5.1%
1942 10.9%
1943 6.0%
1944 1.6%
1945 2.3%
1946 8.5%
1947 14.4%
1948 7.7%
1949 -1.0%
1950: 1.1%
1951 7.9%

Ten Year Treasury Rates

Jan 1, 1952 2.68%
Jan 1, 1951. 2.57%
Jan 1, 1950 2.32%
Jan 1, 1949 2.31%
Jan 1, 1948 2.44%
Jan 1, 1947 2.25%
Jan 1, 1946. 2.19%
Jan 1, 1945. 2.37%
Jan 1, 1944. 2.48%
Jan 1, 1943. 2.47%
Jan 1, 1942. 2.46%
Jan 1, 1941 1.95%

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Old 06-06-2016, 11:57 AM   #63
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A 32 year bear market in bonds was related to the long period of inflation that began to end in 1982 with the very high interest rates put in place then. This was a little like putting the whole economy into a recession just to cure inflation.

I would be quite impressed if a similar inflation reoccurred today. More likely we'll experience a long period of tepid growth with an extended period of low interest rates, not that I can predict the future or anything. I'm just hedging my investments with this tepid growth in mind. I'll be pleasantly surprised if it turns out to be better than this.

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