Bridgewater: “Bonds are a terrible place to be.”

[chassis]

Bonds are a terrible place to be, according to Bridgewater’s Karen Karniol-Tambour, co-CIO for sustainability on Bloomberg. Available to Fidelity clients via the website and app.

No surprise in my view. Billionaires including K-T’s boss have been saying the same thing for a year or more.

She also says commodities and stocks exposed to nominal growth in the nominal economy are good places to be. I agree with these comments.

 

[statsman]

Tell me about it. If you're heavily invested in bond funds and highly risk averse to stock investments, you've been pretty much clobbered the past year+.

 

[Gotadimple]

Bonds are a terrible place to be, according to Bridgewater’s Karen Karniol-Tambour, co-CIO for sustainability on Bloomberg.

That depends on why one invests in the bond market. For the income generated, or to control portfolio volatility, or for market returns. They have always been a poor to mediocre place for market returns.

- Rita

 

[clifp]

That depends on why one invests in the bond market. For the income generated, or to control portfolio volatility, or for market returns. They have always been a poor to mediocre place for market returns.

- Rita

I don't know about that. Shortly after I retired, (2000) I bought TIPS bonds with a coupon of 3.9%, and iBonds with coupons between 3.4 and 3.6%

We had a long thread about corporate inflation-protected bonds ISM/OSM that had similar coupons in the mid 2000s

If you are aiming for a 4% SWR, having a bond portfolio that yields within a 50 basis points goes a long way toward reducing risk.

It is really only the last 10 years, that bond yields didn't contribute a meaningful (5%+) amount of income to retirees.

 

[sengsational]

Bond funds, always seemed like a dumb idea to me, because when the flight to cash happens, they get clobbered as fund managers proceed to "sell low" in the panic. If you have individual bonds, you might take it in gut on interest rates, but if you hold to maturity, you'll get what you set out to get.

 

[RobbieB]

I've known that for decades. I like my 80-20 allocation.

 

[COcheesehead]

Bond funds suck. Bonds not so much.

 

[pb4uski]

Bond funds, always seemed like a dumb idea to me, because when the flight to cash happens, they get clobbered as fund managers proceed to "sell low" in the panic. If you have individual bonds, you might take it in gut on interest rates, but if you hold to maturity, you'll get what you set out to get.

Yup... if you hold a full faith and credit bond to maturity it is about the same as owning a brokered CD.... the market value will fluctuate inversely with interest rtes but you'll get your principal back at maturity. Extend beyond full fait and credit and you're just exchanging additional yield to assuming some credit risk.

 

[Dtail]

Only CD's and Stable Value for me at least through Aug 2024. After that, not quite sure.

 

[USGrant1962]

Only CD's and Stable Value for me at least through Aug 2024. After that, not quite sure.

Over the last couple of years I've moved most of my fixed income exposure to a TIPS index in my 401(k) and Vanguard ultra-short bond as a money-market alternative in my taxable account (it gained 0.2% last year when total bond, intermediate govies, and short term all declined). Oh, and I've been buying iBonds for 10 years and that finally paid off.

I have a small position (~5% of total portfolio) in intermediate term investment grade that I'm trying to decide what to do with (in an IRA). I'm seriously thinking about accelerating my rising glidepath and moving that position into equities sooner rather than later.

 

[COcheesehead]

In an alternate universe…
A recession could happen turning bonds into a nice little haven, but that isn’t likely…or is it? They happen, regularly.

 

[USGrant1962]

In an alternate universe…
A recession could happen turning bonds into a nice little haven, but that isn’t likely…or is it? They happen, regularly.

Oh, it's likely. But one of the attractions of bonds in a recession is that the Fed frequently lowers rates to help the economy - there's nowhere for the Fed to go these days. And recessions end, usually in a couple of quarters but occasionally in a couple of years, and equities begin climbing again.

So you might lose some rebalance bonus, but unless you are living on the edge a portfolio failure or have some extreme AA, a recession or two shouldn't be material for most of us.

 

[COcheesehead]

Oh, it's likely. But one of the attractions of bonds in a recession is that the Fed frequently lowers rates to help the economy - there's nowhere for the Fed to go these days. And recessions end, usually in a couple of quarters but occasionally in a couple of years, and equities begin climbing again.

So you might lose some rebalance bonus, but unless you are living on the edge a portfolio failure or have some extreme AA, a recession or two shouldn't be material for most of us.

My point being I am not in a hurry to ditch bonds. I hold only individual issues.

 

[RobbieB]

Yeah, I got out of bond funds 4 years ago. Fees are higher than I pay my Fidelity advisor to manage individuals.

 

[COcheesehead]

A bond ladder is easy to manage. I have about 140 issues in a muni ladder. I paid $1 a bond and nothing more after that. The ladder covers all my income needs until 2031 so I let my equities roll.

 

[daylatedollarshort]

I pretty happy with our TIPS ladder right now and high inflation. Other than that for fixed income I have floating rate funds and stable value, and will buy the max on I-bonds. We didn't have a lot in bond funds but I've been selling off what we did have.

 

[COcheesehead]

So many on this board would raise an eye brow or two if someone said “stocks are down, I am selling”, but for bonds not the same reaction.

 

[kgtest]

I will never own a bond again. 100% equities (and some cash). I don't see the need for bonds at all.

 

[mrfeh]

So many on this board would raise an eye brow or two if someone said “stocks are down, I am selling”, but for bonds not the same reaction.

+1

The recency bias expressed in threads like this is alarming.

 

[USGrant1962]

+1

The recency bias expressed in threads like this is alarming.

Agree. The recent, uninterrupted 40-year bull market in bonds caused by declining interest rates since 1981 has really distorted people's perception of the risks of bonds.

I kid, but not really. Currently bonds have a negative expected real return (and are actually negative in Europe*), hence the discussion.

*Though it has improved, it is less than half the market with sub-zero yields now! https://www.reuters.com/article/europe-bonds-negative-idUSL8N2UC3HS

 

[COcheesehead]

Agree. The recent, uninterrupted 40-year bull market in bonds caused by declining interest rates since 1981 has really distorted people's perception of the risks of bonds.

I kid, but not really. Currently bonds have a negative expected real return (and are actually negative in Europe*), hence the discussion.

*Though it has improved, it is less than half the market with sub-zero yields now! https://www.reuters.com/article/europe-bonds-negative-idUSL8N2UC3HS

It really depends on what someone has in their portfolio. If you were buying bonds over the last decade, you likely have good returns and good coupons.

Now if you are in a bond fund, it may be a different story.

 

[mrfeh]

It really depends on what someone has in their portfolio. If you were buying bonds over the last decade, you likely have good returns and good coupons.

Now if you are in a bond fund, it may be a different story.

Using VBTLX as a proxy for total bond funds:

5 year CAGR: 3.58%
10 year CAGR: 2.86%
Current 30 day SEC yield: 1.8%

Not great, but better than CDs or cash in a bank.

 

[COcheesehead]

Using VBTLX as a proxy for total bond funds:

5 year CAGR: 3.58%
10 year CAGR: 2.86%
Current 30 day SEC yield: 1.8%

Not great, but better than CDs or cash in a bank.

And it probably dropped substantially less than equities over last month giving you a rebalancing pool and/or income. Hence my questioning of selling bonds when they are down. Down is relative.

 

[daylatedollarshort]

And it probably dropped substantially less than equities over last month giving you a rebalancing pool and/or income. Hence my questioning of selling bonds when they are down. Down is relative.

There's a difference between getting out of fixed income and getting out of long term bond funds.

 

[foxfirev5]

Nice thread. I was just ready to give up and go bond funds at the start of the year. All in the interest of simplicity. But I can see how transitioning from various ST and IT funds to cash for withdrawals could be a bigger hassle.

I don't want to leave a massive CD/Treasury ladder to my DW. However it's not really that tough. I've looked at Fido's managed bond program and don't see much if any advantage. If corporates adequately compensated for risk maybe, but the spread is not there now.

My latest potential plan is to gradually expand my 5-7 year ladder out to equal payments for 15 years using strips and TIPs. If rates stagnate I'm OK. If they go up I'll DCA to higher rates. The maturing bonds would complement ETf divies and cover most if not all of my RMD's. I could reduce my 100+ holdings down to about 30 or two maturing per year. No further maintenance required for many years. (Other than peeling off equity gains from the Roths - Hopefully)