Ultra short-term bond funds

[brewer12345]

Quote:

Originally Posted by PPT Only thing the Fed can do is talk tough and hope the subprime situation does not spread. Dr. Bernanke will just continue to flood M3 - Gold and inflating U.S. stock prices is a product of this.

Maybe, or maybe not.

I think an equally likely scenario is that the Fed chops short term rates, the USD continues slumping and longer rates eventually rise. The yield curve de-inverts, and the pain lasts until the UK and Europe stop raising rates.

[PPT]

Quote:

Originally Posted by brewer12345 Maybe, or maybe not. I think an equally likely scenario is that the Fed chops short term rates, the USD continues slumping and longer rates eventually rise. The yield curve de-inverts, and the pain lasts until the UK and Europe stop raising rates.

Then yields will go up because who wants to buy U.S. debt when they know the Fed will sacrifice the U.S. dollar? We need to be able to borrow $2.5B from overseas to keep this economy humming along.

Whatever way you cut it - Greenspan is probably very happy he is gone.

[brewer12345]

Quote:

Originally Posted by PPT Then yields will go up because who wants to buy U.S. debt when they know the Fed will sacrifice the U.S. dollar? We need to be able to borrow $2.5B from overseas to keep this economy humming along.

Uhuh, but it will only matter as long as the US is slowing as other economies are expansionary.

[PPT]

Quote:

Originally Posted by brewer12345 Uhuh, but it will only matter as long as the US is slowing as other economies are expansionary.

We will get a sniff tomorrow at 1pm when the Treasury holds the 10 year auction. I wish the 10 year auction was on Thursday (FOMC announcement on Wednesday) but they probably planned it that way.

I will be watching the indirect bids.

Nice talking to you. My plane is boarding for lovely Boston. . Go Red Socks.

[Brat]

Quote:

Originally Posted by PPT Nice talking to you. My plane is boarding for lovely Boston.

The long wait times in airports are almost bearable with free WiFi.

[safari]

Thanks for the discussion. A couple of days ago I put $50k in the SWYSX ultra short-term bond fund. This is not money I need for years. I have plenty in stock + index funds, CDs, and MMF. I just thought maybe I should put some in a bond fund. The last time I did (see my original post) I sort of got burnt so for the last 13 years I have stayed away from them.

Now that I have you on the line though I have another related question. What do you think of longer term bond funds right now? All my money is in the stock market and CDs/MMF except for this $50k in the ultra short-term bond fund. What do you think about putting some money in longer term bond funds?

[Spanky]

Compared to short-term and intermediate bonds, long term bonds have a higher correlation to stocks, slightly higher yield than intermediate but lower than short-term. The return of long-term bonds is only slightly better than those of short-intermediate bonds but a significantly higher risk. In short, I would not put my money into long-term bond funds.

[mathjak107]

i agree long term bonds seem to correlate to stocks alot more than we would thing. actually long term they are riskier than stocks. long term bonds have had alot more negative years where they failed to beat inflation and few of the substantial gains in the good years .

[dwshelf]

Quote:

Originally Posted by mickeyd Can someone advise me what makes a bond fund ultra short? Sounds like a MMF/STB hybrid to me?

That turns out to have been a far better question than almost anyone knew.

The answer was, "whatever Schwab says it means". At one time it included 30 year bonds.

The "maturity" report also turns out to mean whatever Schwab says it meant. A sub prime mortgage which will have its interest rate changed in three months was a maturity of three months.
A piece of commercial paper which is callable in three months if interest rates drop, but can be left out for twenty years if interest rates rise has a maturity of three months.

SWYSX is down from $9.68 in July to $9.28 as of today. Down 5 cents in the last two days.

The crooks got caught. They sold this thing as a safe place for cash, while investing it in a way which might have been justified if they had yielded 8%. Scared of lawsuits, they now describe as risky. They don't describe it as a place for cash. They quote a maturity of about two years, which is probably more accurate, but still subject to their wonderland definitions.

dw

[FUEGO]

Fidelity Short Term Bond (FSHBX) has been hammered lately, too. What I thought was a short term, high quality corporate bond fund didn't do so well over the last 6 months in the credit crisis. The yield isn't any better than vanguard's equivalent fund, they just apparently took a lot more risk at this fund to maintain a similar yield as vanguard's equivalent fund while charging an expense ratio 1.5x that of the comparable VG fund. In other words, FSHBX shareholders are paying more for less.

[mathjak107]

Quote:

Originally Posted by mathjak107 it all depends which way you think rates are headed. no one can answere that question for you. my opinion is we most likely are headed for a slowdown and i think more likely to see lower rates than higher rates so i have more in short term bond funds than cd's and money markets. but if im wrong the money markets will do a little better. a short term bond fund usually wont loose much in rising rates and if you re-invest the dividends it recovers very quickly also although your nav dropped the interest rate you were getting rose so overall i bet you werent down as much as you thought.

boy was i wrong on this. fidelity's ultra short term bond fund tumbled badely. they lost about 8% from the top to the bottom. they had quite a bit sub prime. fidelity short term bond fund did poorly too but not as bad

[audreyh1]

Short term bonds funds can really burn you if you don't watch it. A couple years ago, people were expecting short term to out perform long/intermediate with rising interest rates, but guess what! Short funds got hurt by the rising interest rates, but long rates barely rose and intermediate/long bond funds outperformed short. You just never know how things are going to turn out!

But the credit risk thing - that's a tough one to call. Compare the Fidelity bond fund performance to Metropolitan West (or Vanguard). The difference is that the latter fund houses deliberately steered clear of subprime. Fidelity, like a lot of fund families, really got caught. The most shocking one was Fidelity Ultra-short Bond Fund - one I track since I considered it a year or so ago. Ouch!

Audrey

[FinanceDude]

Quote:

Originally Posted by mickeyd Can someone advise me what makes a bond fund ultra short? Sounds like a MMF/STB hybrid to me?

They buy instruments due within a yuear typically, including but not limited to secondary market corporates, Treasuries, etc........