Another Bond Question (DBLTX)

[Jerry1]

Like many, I've been frustrated with low return and volatility of my bond funds. But, I looked at things a bit deeper today and things don't seem too bad. Wondering if I'm missing something.

One of my funds is DBLTX. The average maturity is 3.48 years and the current yield is about 3.6.

Of course there is the risk of default, but the interest rate risk seems very low. If anything, rates seem to be more likely to go down. Comments are welcome on these two aspects, but I'm looking to focus on the yield.

In the spirit of where to hold my cash for a year or two, this doesn't seem as bad as I thought. The yield will no doubt go down as older bonds mature and new bonds are brought in, but that's not going to happen overnight. The turn over is 28% so it seems like expecting a year or so more out of this fund isn't a bad place to hold some funds. Anything I'm missing or is holding this for a while longer (12-18 months) reasonable for the goal of >3% return for a year or so?

[njhowie]

An investment in DBLTX is an investment in Gundlach. If you trust Gundlach, then don't worry about it.

[eytonxav]

The funds credit rating is BB, lower than its category, so that explains the yield. Duration is short. Gundlach is a good manager, so he probably does his homework to manage the credit risk, but hard to know for sure in the Covid environment.

[aja8888]

The returns for the first four months of 2020 have been negative. Remember interest rates are dropping. Although 2019 was a good year for the bond fund, 2020 is shaping up poorly.

[audreyh1]

Quote:

Originally Posted by Jerry1 Like many, I've been frustrated with low return and volatility of my bond funds. But, I looked at things a bit deeper today and things don't seem too bad. Wondering if I'm missing something. One of my funds is DBLTX. The average maturity is 3.48 years and the current yield is about 3.6. Of course there is the risk of default, but the interest rate risk seems very low. If anything, rates seem to be more likely to go down. Comments are welcome on these two aspects, but I'm looking to focus on the yield. In the spirit of where to hold my cash for a year or two, this doesn't seem as bad as I thought. The yield will no doubt go down as older bonds mature and new bonds are brought in, but that's not going to happen overnight. The turn over is 28% so it seems like expecting a year or so more out of this fund isn't a bad place to hold some funds. Anything I'm missing or is holding this for a while longer (12-18 months) reasonable for the goal of >3% return for a year or so?

Please put cash needed for a year or two in a high yield savings account.

[Jerry1]

Quote:

Originally Posted by audreyh1 Please put cash needed for a year or two in a high yield savings account.

I agree, but I have plenty of cash. I'm just saying that this seems reasonable for a year or so as an investment, not that I'll need it in a year or so. I feel pretty sure that in a year or so, the yield will be so low it won't matter but it will give me time to consider what to do. Note also, the money is already there. I was thinking of cashing it out, but in giving it more thought, it seems good for a short time period.

[Jerry1]

Quote:

Originally Posted by aja8888 The returns for the first four months of 2020 have been negative. Remember interest rates are dropping. Although 2019 was a good year for the bond fund, 2020 is shaping up poorly.

By returns, do you mean the capital cost or the yield? I agree the price has gone down, but it's still disbursing the yield. So, given the price has gone down, hasn't my yield gone up? The underlying bonds haven't stopped paying their interest/coupon - right?

[Jerry1]

Quote:

Originally Posted by njhowie An investment in DBLTX is an investment in Gundlach. If you trust Gundlach, then don't worry about it.

At the current moment, I'm not sure I can trust anyone, but I figure you folks are more trustworthy than most.

[audreyh1]

Quote:

Originally Posted by Jerry1 I agree, but I have plenty of cash. I'm just saying that this seems reasonable for a year or so as an investment, not that I'll need it in a year or so. I feel pretty sure that in a year or so, the yield will be so low it won't matter but it will give me time to consider what to do. Note also, the money is already there. I was thinking of cashing it out, but in giving it more thought, it seems good for a short time period.

Well, I usually look at the average/effective duration of a fund as a measure of how long to hold a bond fund to overcome interest rate risk. I notice that for DBLTX it is close to 3.5 years.

But honestly, DBLTX holds such low quality credit paper I would avoid it. That’s why the current SEC yield is so high. I guess you have to trust that Gundlach is good at picking through this almost junk. It’s a riskier bet. Maybe the excess yield makes up for the riskier holdings. Who knows?

[audreyh1]

Quote:

Originally Posted by aja8888 The returns for the first four months of 2020 have been negative. Remember interest rates are dropping. Although 2019 was a good year for the bond fund, 2020 is shaping up poorly.

Yes, interest rates have been dropping, but spreads have been widening, which is why the interest rates are so much higher for this lower quality paper. Spreads could continue to widen if businesses come under more stress. We just don’t know.

[ElizabethT]

Every time I see this thread title I do a double take and think, 'Bond. James Bond.'

Every single time.

[COcheesehead]

Quote:

Originally Posted by DFW_M5 The funds credit rating is BB, lower than its category, so that explains the yield. Duration is short. Gundlach is a good manager, so he probably does his homework to manage the credit risk, but hard to know for sure in the Covid environment.

25% is BB or below, the rest is investment grade.


If the OP is looking for yield, take a peek at PTIAX. It’s a five star fund. I have used it as a core holding in my deferred accounts for years. Current yield is 4.68%. Almost 80% of its holdings are investment grade. It also pays interest in the middle of the month, which isn’t necessarily an advantage, but I like that it balances out all my other individual bond interest which is paid usually at month’s end.

[wrigley]

Quote:

Originally Posted by audreyh1 Please put cash needed for a year or two in a high yield savings account.

They are dropping like a rock also.

Mike

[audreyh1]

Quote:

Originally Posted by wrigley They are dropping like a rock also. Mike

That’s not the point.

Money that is needed in a year or two should be in something that won't go down in value.

[atmsmshr]

Quote:

Originally Posted by ElizabethT Every time I see this thread title I do a double take and think, 'Bond. James Bond.' Every single time.

Thanks for coming out of that closet - Now I know that I am not alone in thinking the same!

[Markola]

I own Vanguard Total Bond Index Fund VBTLX, which is up 4.7% YTD, 10.86% for the past 12 months. It has a .05% expense ratio and holds 9,378 bonds. I know the bond experts have been saying for years that it has nowhere to go but down. And yet it goes up.

[mrfeh]

Quote:

Originally Posted by Markola I own Vanguard Total Bond Index Fund VBTLX, which is up 4.7% YTD, 10.86% for the past 12 months. It has a .05% expense ratio and holds 9,378 bonds. I know the bond experts have been saying for years that it has nowhere to go but down. And yet it goes up.

Have you asked yourself why?

And of course, what has happened the last 12 months (or YTD) has little to no bearing on what will happen in the future.

[COcheesehead]

The trend is your friend. Rates could go lower, bonds could go higher, though the Fed seems to have back stopped the 10 year at about .6%

[Jerry1]

Quote:

Originally Posted by COcheesehead 25% is BB or below, the rest is investment grade. If the OP is looking for yield, take a peek at PTIAX. It’s a five star fund. I have used it as a core holding in my deferred accounts for years. Current yield is 4.68%. Almost 80% of its holdings are investment grade. It also pays interest in the middle of the month, which isn’t necessarily an advantage, but I like that it balances out all my other individual bond interest which is paid usually at month’s end.

When I look at Morningstar, there is a section on the holdings where the last line is "Not Rated". What is that? That is a very large number for DBLTX (25%). Does that automatically refer to junk, or is it small stuff that's not rated? Seems to be a disconnect in that folks here see this bond fund as risky, but Morningstar has it listed as below average risk. Not sure how to process this.

[COcheesehead]

Quote:

Originally Posted by Jerry1 When I look at Morningstar, there is a section on the holdings where the last line is "Not Rated". What is that? That is a very large number for DBLTX (25%). Does that automatically refer to junk, or is it small stuff that's not rated? Seems to be a disconnect in that folks here see this bond fund as risky, but Morningstar has it listed as below average risk. Not sure how to process this.

Fidelity shows unrated at 17%, investment grade at about 75%.

The unrated means just that, it hasn't been rated. That could mean its private placement, the bond is prefunded so a rating is meaningless or its close to maturity so they don't pay for a rating that is of little value.

Fidelity also rates it as below average risk. Some folks think anything outside of cash is risky.
I don't see it as risky. Its a good fund, a four star fund. You could do worse, you could also do a tad better.