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Old 07-27-2022, 06:29 PM   #81
Thinks s/he gets paid by the post
 
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Originally Posted by BackcountryMe View Post
That's so 2006!

The reality is that BND pays almost nothing and with a duration of 8+, you're more likely to get your tushy handed to you in capital losses than you are to make a real return through interest income.
If you hold it for 8 years, you should expect the total return to be the current SEC yield.

The NAV at sale may be higher or lower than the NAV at purchase. Nobody knows which.

Recency bias has apparently overwhelmed many posters on this site.
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Old 07-27-2022, 06:35 PM   #82
Thinks s/he gets paid by the post
 
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Originally Posted by BackcountryMe View Post
The only reason to hold BND is if you think the Fed will go dovish again and you don't want to hassle of buying individual notes.
With Fed funds rates at 2.5% and headed to 3.5%, money market funds yields should climb to around 2.5% short term and even higher if rates continue to rise exceeding the distribution of funds like BND. There is no rational argument to put new money today into ETFs like BND. Treasuries, CDs, agency and corporate notes are a better options and offer higher yields. If rates fall, yes BND will rise but individual corporate notes with yields of 4.5-5% will rise more.

If you look at fund flow data, you can clearly see that investors are exiting bond funds and buying individual bonds as prices of individual bonds are rising.

https://www.lipperusfundflows.com/#c...gnup_trial.php
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Old 07-27-2022, 06:53 PM   #83
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Originally Posted by Freedom56 View Post
With Fed funds rates at 2.5% and headed to 3.5%, money market funds yields should climb to around 2.5% short term and even higher if rates continue to rise exceeding the distribution of funds like BND. There is no rational argument to put new money today into ETFs like BND. Treasuries, CDs, agency and corporate notes are a better options and offer higher yields. If rates fall, yes BND will rise but individual corporate notes with yields of 4.5-5% will rise more.

If you look at fund flow data, you can clearly see that investors are exiting bond funds and buying individual bonds as prices of individual bonds are rising.

https://www.lipperusfundflows.com/#c...gnup_trial.php
I completely agree. I think most folks are intimidated by buying individual securities (stocks or bonds) and therefore they stick with funds. But unlike stocks, where it's hard to tell ex-ante if you're going to do better, it's much easier with bonds (as you've correctly pointed out).

Just curious, what were some of the 9% high yield bonds you picked up?
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Old 07-27-2022, 06:58 PM   #84
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Originally Posted by mrfeh View Post
If you hold it for 8 years, you should expect the total return to be the current SEC yield.

The NAV at sale may be higher or lower than the NAV at purchase. Nobody knows which.

Recency bias has apparently overwhelmed many posters on this site.
Recency bias skewed Bogleheads into believing bond index funds=stock index funds.
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Old 07-27-2022, 07:11 PM   #85
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Originally Posted by Quattro73 View Post
Recency bias skewed Bogleheads into believing bond index funds=stock index funds.

With interest rates rising significantly for the first time in decades, many of us former bond fund holders have had to get used to our cheese being moved.
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Old 07-27-2022, 07:30 PM   #86
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Just curious, what were some of the 9% high yield bonds you picked up?
I bought this 6.75% December 2023 Note from Centurylink at $98.12 in June.

https://finra-markets.morningstar.co...bol=CTL4071342

I bought a lot more of this one that I have held since 2017 and every time it drops below par, I load up. This time I picked up a bunch at $98 for YTM of about 9%. Centurylink 7.5% 4/1/2024 Notes.

https://finra-markets.morningstar.co...bol=CTL4346902

Those bond funds that were buying this debt late last year to early this year well above par were selling it below par and now are buying back above par. This is a very predictable pattern that individual bond investors can take advantage of.

The company has been on a debt buying binge since 2018 due to covenants on their secured bonds with respect to leverage. They plan to spend $7 billion in cash buying back debt this year from the sale of their legacy assets.
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Old 07-27-2022, 09:07 PM   #87
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Originally Posted by Quattro73 View Post
Recency bias skewed Bogleheads into believing bond index funds=stock index funds.
I haven't been able to get my mind around bond index funds.

With stock index funds you get a % of each company in the index you are tracking equal (as best the fund can make it) to the % value each company has in the index. That means as companies do well and get bigger, you own an increasing amount of the company, and as they do poorer, you hold less. Seems good.

But what does a bond index track? Do they try to get a part of every bond issue out there? Do businesses issue bonds because they are going to grow and be more successful, or because they aren't doing well enough to raise the capital on their own? Do you really want to own more bonds from a company that has to borrow more and more money? Or is so much of it government bonds that the other bonds are just noise?
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Old 07-28-2022, 09:55 AM   #88
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I haven't been able to get my mind around bond index funds.

With stock index funds you get a % of each company in the index you are tracking equal (as best the fund can make it) to the % value each company has in the index. That means as companies do well and get bigger, you own an increasing amount of the company, and as they do poorer, you hold less. Seems good.

But what does a bond index track? Do they try to get a part of every bond issue out there? Do businesses issue bonds because they are going to grow and be more successful, or because they aren't doing well enough to raise the capital on their own? Do you really want to own more bonds from a company that has to borrow more and more money? Or is so much of it government bonds that the other bonds are just noise?
You raise some important questions. I'll not really try to fully answer, but give a bit of a different perspective to speak to some of what I think you are getting at. I think you have 2 broad areas: (1) Why do companies issue bonds? (2) How do index funds work?

I think funds mostly use statistical sampling techniques so that they don't need to try & buy some of every bond. There are fundamental difference in the nature of bonds & stocks that make this much easier on the bond side. There are a few factors that affect the price of a bond: credit quality, duration, etc. So, when a bond is bought, there is somewhat of a ceiling in place for that bond's return & certainly for bonds with the same characteristics. With stock, the investor has greater risk, but also a chance at upside making more of a differentiation.

Companies should issue bonds when that is cheapest form of capital & capital is "needed". Now some may issue bonds because they can. A few years ago Microsoft, Apple, etc were issuing bonds...because they were in trouble? or because capital was cheap (almost to point of being free)? Think thru the company accounting for debt vs equity & you'll see the impact is quite different from both the company side & investor side.

As to question of buying more bonds from a company that has to borrow more and more? Think of it this way...you may also own shares in that company on the stock side. If the company is borrowing inappropriately, there is likely more risk on the equity side than the bond side, right?

For the most part, the lower volatility of bonds lessens the distinction between specific assets. It is important to select the right area of the debt market. The individual bond owner or fund manager can scrape a little bit out on cap gain/loss, but coupon payment will account for lion share of return usually. If the index calls for "investment grade" & the company fails to sustain that level, the fund will have to sell that bond.

Always a good idea to not invest in things that we don't understand, although probably few really understand all the nuances.
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Old 08-05-2022, 12:47 PM   #89
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Originally Posted by Freedom56 View Post
I bought this 6.75% December 2023 Note from Centurylink at $98.12 in June.

https://finra-markets.morningstar.co...bol=CTL4071342

I bought a lot more of this one that I have held since 2017 and every time it drops below par, I load up. This time I picked up a bunch at $98 for YTM of about 9%. Centurylink 7.5% 4/1/2024 Notes.

https://finra-markets.morningstar.co...bol=CTL4346902

Those bond funds that were buying this debt late last year to early this year well above par were selling it below par and now are buying back above par. This is a very predictable pattern that individual bond investors can take advantage of.

The company has been on a debt buying binge since 2018 due to covenants on their secured bonds with respect to leverage. They plan to spend $7 billion in cash buying back debt this year from the sale of their legacy assets.
Thank you!
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