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Old 03-07-2021, 09:19 AM   #21
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I did too back when rates were around 3.5%. But now that my CDs have matured Iím not finding that to be a viable strategy any more so Iíve gone back to municipal bonds. If Iím going to make next to nothing on yield I might as well not have to pay taxes on it.
I'm good for a while... I bought a lot of 3.0-3.5% 5-year CDs in 2019. But I do have some CDs maturing this year that I'm not sure where that money will land, but some will be spending for the rest of 2020 and 2021.
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Old 03-07-2021, 09:20 AM   #22
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As I understand it if the duration is 6 then if rates increase by 1% then it will take 6 years for the bond fund to make up for the decline in value through the higher interest rates... so you would be treading water for 6 years to offset a 1% increase in interest rates. Not for me!
Yes, that is true. But realistically how quickly are rates going to go up a full 100 basis points? The fed takes a year before they decide to move rates up by 1/8 of a percent. It could be years before we add another full percent to todayís current rates.
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Old 03-07-2021, 09:26 AM   #23
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I think it is quite possible... look at 2013, 2009 and 1999. Plus there are many years that it went down 1% or more so. If/when the economy gets going then a 100 bps increase is very possible IMO.

https://www.macrotrends.net/2016/10-...te-yield-chart
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Old 03-07-2021, 09:32 AM   #24
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I think it is quite possible... look at 2013, 2009 and 1999. Plus there are many years that it went down 1% or more so. If/when the economy gets going then a 100 bps increase is very possible IMO.

https://www.macrotrends.net/2016/10-...te-yield-chart
Look at the numbers in relative terms though. In 2021 yields increased 65%. But the actual yield only rose from .89% to 1.20%. So that was only 31 basis points.

For the yield to increase a full 100 basis points it would need to almost double. How likely is that to happen in the near future?
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Old 03-07-2021, 09:34 AM   #25
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Anyone else worried about YTD performance of their bond index funds? My Vanguard VBTLX is now -2.28 for the year.
As you are seeing from other's comments....Rising interest rates cause a decrease in bond fund values. Bond funds with longer durations see a bigger value impact. The loss in bond fund value can be more than the dividend payout. That has been the case with VBTLX recently. As the rising interest rate slows and steadies out, the purchase of new bonds in the bond fund will bring the fund value back in line with new bonds purchased at the current interest rate.

VBTLX has a average duration of ~ 6.6 yrs. It was the main fixed asset holding in our retirement accounts. Last week I sold all VBTLX and dropped the funds into a simple money market to address the steady decrease in value. FWIW - When the bond price catches back up to the 100 day average I'm planning to consider buying again.
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Old 03-07-2021, 09:35 AM   #26
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Look at the numbers in relative terms though. In 2021 yields increased 65%. But the actual yield only rose from .89% to 1.20%. So that was only 31 basis points.

For the yield to increase a full 100 basis points it would need to almost double. How likely is that to happen in the near future?
I dunno... given that it has increased from 0.93% at th beginning of 2021 to 1.54% today... a 0.61% increase in a tad over two months... a 100 bps increase if the ecomony recovers and we have an inflation threat seems very possible to me. YMMV.
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Old 03-07-2021, 09:36 AM   #27
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My individual bond portfolio is up 2.79% YTD. As the economy recovers, investors turn to high coupon high yield bonds in stable industries. Some of my high yield bonds even received ratings increases. Many bond funds hold historically low coupon investment grade bonds that are getting wacked as rates rise. A bond fund like BND with a YTM of 1.2% with and effective maturity of 8.5 years is a big red flag.

https://investor.vanguard.com/etf/profile/BND

What it illustrates are these funds are willing to bid up bond prices to the point where the yield versus risk becomes irrational. I'm counting on another sell-off of bond funds so I can pick up more individual bonds. It looks like another repeat of 2013 with a slow gradual sell-off into tax loss selling season. If it is, that means that bargains are in the future for individual bond and preferred stock investors.
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Old 03-07-2021, 09:44 AM   #28
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I started purchasing California municipal bonds through the Vanguard intermediate bond fund (VCADX) in 2012. At that time the NAV on the fund was $11.90. Today, nine years later, the NAV is $12.22. The lowest it every went (in 2013) was $11.09. So while yields have move around as much as 100 basis points in the past nine years, the NAV has been very stable.

While interest rate sensitivity is a real risk, there are other factors in play. When equities tank investors look to move money to bonds in a flight to safety. When this happens the NAV on bond funds can go up even if yields are not moving.

I’m not a huge fan on bonds right now. But I just don’t see anything else on the fixed income side that looks much better.
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Old 03-07-2021, 09:52 AM   #29
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I’ll have to do some reading. I bought my first house when I was in my 20’s and interest rates were double digits. I’ve really only seen interest rates go down. Now that they’re zero and will likely go up, I need to have a better understanding on what to do investment wise. I always thought of bonds as a asset class that moves counter to stocks.
I expect the interest rate trend very long term will be up. However, within that long term trend, interest rates will go up and down a lot as they always do. They are never in a straight line. Poor bond years are often followed by rebounds.
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Old 03-07-2021, 09:55 AM   #30
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Anyone else worried about YTD performance of their bond index funds?


No!! I had it when it made 8-9% last year, and I'll keep it while it loses 3-5 % this year. Over the long haul, it still supplies ballast for my equities which is why I have it in the first place.

VW
Exactly! Keep buying more bonds while stocks rocket skywards. Then when stocks occasionally stumble.....
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Old 03-07-2021, 09:59 AM   #31
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I expect the trend very long term will be up. However, during that long term trend interest rates will go up and down a lot as they always do. They are never in a straight line. Poor bond years are often followed by rebounds.


+1. I hold bond index funds for their long-term, total return and as ballast for my stocks.

We also own an international bond index fund just to have something else that has the possibility of zigging while other stuff zags.
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Old 03-07-2021, 10:28 AM   #32
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So, maybe worth another thread, but if rates are likely going up, which lowers the bond funds, and rates going up cause stocks to go down as well, where am I supposed to put my investments?

I have a low stock percentage ďto be safeĒ and now it looks like I should just go to cash until things settle, which they never seem to do. I guess I could trade my bonds for cash with enough gold to hedge inflation.

Yes, Me Too, Ditto, We Are Alike. Ally Bank here we come.
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Old 03-07-2021, 10:38 AM   #33
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Bonds. Doing the job forever.
From a real return data series (1920-2020) in Simba Backtest-Portfolio (spliced data).
Yes, there are down years, but panic not required.
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Old 03-07-2021, 10:49 AM   #34
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VBTLX with 4% annual inflation adjusted withdrawals... has held up well historically despite a steady decline since 2012... will this time be different? Who knows, my crystal ball is broken.

https://www.portfoliovisualizer.com/...ocation1_1=100
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Old 03-07-2021, 10:56 AM   #35
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... if rates are likely going up, which lowers the bond funds, and rates going up cause stocks to go down as well, where am I supposed to put my investments?...
Evolution has bred humans to be a race of optimists, but the brutal truth is that some problems have no good solutions.

Further, when faced with a choice among only undesirable courses of action, we tend to freeze and do nothing, taking instead the default undesirable action --- the status quo.
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Old 03-07-2021, 11:12 AM   #36
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No.

I just rebalance when appropriate which means buying more next year if rates continue to rise.

I’ve been through this scenario many times over the past two decades. Rates dropped dramatically last year and my bond funds appreciated a lot. Now they are giving some of that back. It comes and it goes.

I always have a chunk in cash and short-term bond index funds as well.
This. Bond funds are a counterweight to stocks, I'm not worried about year-to-year fluctuations.

If the Bogleheads still consider VBTLX part of a two/three/four fund portfolio that's good enough for me.
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Old 03-07-2021, 11:49 AM   #37
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I have had a dynamic approach heading into this year. My bank loan (floating rate) ETF is up sharply and the market neutral Merger Fund is also up. I have added to the bank loan ETF.

My core plus bond funds are down YTD but have done well over past 12 months. Can't complain too much.

I'm glad I have some 3.3% CDs, and a lot of idle cash at the moment from trimming high fliers 2-3 weeks ago.
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Old 03-07-2021, 12:10 PM   #38
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Relevant article that I just stumbled on: https://www.bloomberg.com/news/artic...-big-short-bet

Quote:
...The trifecta of more fiscal stimulus ahead, ultra-easy monetary policy and an accelerating vaccination campaign is helping bring a post-pandemic reality into view. There are of course risks to the bearish bond scenario. Most prominently, yields could rise to the point that they spook stocks, and tighten financial conditions generally -- a key metric the Fed is focused on for guiding policy. Even so, Wall Street analysts can’t seem to lift year-end yield forecasts fast enough.

“There’s a lot of tinder being put now on this fire for higher yields,” said Margaret Kerins, global head of fixed-income strategy at BMO Capital Markets. “The question is what is the point that higher yields are too high and really put pressure on risk assets and push Powell into action” to try and tamp them down. ...
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Old 03-07-2021, 12:21 PM   #39
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I manage Dad's money and sold off his BND fund in December as it had risen a lot.
Really glad I did. I was thinking of his directive: "Don't lose money" (talk about pressure )

For Our money, I've now, after some decline, sold off 50% of our BND fund. Also sold some other bond funds that are still (+), I don't really want to wait for them to go negative.

I have some term dated bond funds, which are down, but they've been down for a while and will pay out within 2 yrs, so will just wait to see if they rebound at payout time. They pay ~4%

I'm replacing them with either nothing (cash will loose less than the bonds if rates go up more) or high paying preferred, which will also sink in value, but pay 6%->9%.

There is no easy answer, and I remember when interest rates were at 18% , just imagine.
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Old 03-07-2021, 12:35 PM   #40
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I moved out of total bond funds last year. Put it all in my 401k stable value fund @ 2.2%. Feel good about that and will leave it that way for a while. I will start converting the 401k to Roth next year, so will need someplace to put my fixed income. Will cross that bridge when we come to it.
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