Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 08-26-2020, 02:12 PM   #81
Thinks s/he gets paid by the post
 
Join Date: Jul 2013
Posts: 1,127
Quote:
Originally Posted by gabrewer View Post
Anyway, just wanted to throw that out there for what it's worth. Although there's already been a lot of feedback on this thread, I would welcome anything else anyone wants to day.


Cheers.
There isn't much to say. When interest rates drop, the NAV of bond funds increase.

If/when rates go back up, the NAV will decrease.
mrfeh is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 08-26-2020, 02:13 PM   #82
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 29,183
Most of the total return is due to increases in the value of the bond portfolio relating to lower interest rates... see clip below from the June 30, 2020 annual report.
Attached Images
File Type: jpg Capture.JPG (180.9 KB, 54 views)
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56...target 65/35/0 AA TBD
pb4uski is offline   Reply With Quote
Old 08-26-2020, 03:13 PM   #83
Recycles dryer sheets
 
Join Date: Sep 2014
Posts: 178
according to https://money.usnews.com/ if interest rates move just 1% the fund will drop by 13% NAV... I have a feeling that who ever becomes Pres in Nov will determine if we have to adjust for inflation....
dixter is offline   Reply With Quote
Old 08-26-2020, 03:25 PM   #84
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
target2019's Avatar
 
Join Date: Dec 2008
Location: Stuck in the mud somewhere in the NJ swamp
Posts: 7,100
Vanguard Intermediate-Term Bond Index Fund Admiral Shares (VBILX)
https://investor.vanguard.com/mutual.../profile/VBILX
Risk level 2/5

Vanguard Long-Term Investment-Grade Fund Investor Shares (VWESX)
https://investor.vanguard.com/mutual.../profile/VWESX
Risk level 3/5

Inerest rates have been dropping, causing a flight to bonds?
target2019 is offline   Reply With Quote
Old 08-26-2020, 03:39 PM   #85
Recycles dryer sheets
 
Join Date: Sep 2014
Posts: 178
just my own observations... for seperate bonds I saw where the bond market flipped upside down for a short duration... interest rates went down and so did the bonds... then the FED stepped in and the bankers started to prop up the bonds... the bonds are not at the all time high they used to be but considering the economy they are at a pretty high level so I guess the prop up is working so far.... but if interest rates start to move up
dixter is offline   Reply With Quote
Old 08-26-2020, 03:58 PM   #86
Recycles dryer sheets
 
Join Date: Jun 2017
Location: Punta del Este
Posts: 311
Quote:
Originally Posted by njhowie View Post
Exactly.

However, most folks cannot grasp this, or do not understand how big an issue this really is. When interest rates get so low and it appears that it will be that way for some time, folks begin to become conditioned to it and will chase yield wherever they can find it.

I cannot in good conscience be buying any bonds or funds with such low yields. I would rather sit in raw cash, earning nothing (or as others would say, lose to inflation). Putting money in to fixed income yielding well under 2% at these levels is akin to picking up pennies in front of a steam roller. The risks are simply not worth it in my view.
I don’t believe in Bond Funds but do believe in Bomd ladders and where you can hold until they payout or sell if worthwhile but you keep reinvesting, assuming it makes sense, in some bonds for stability and diversification
Retired Expat is offline   Reply With Quote
Old 08-26-2020, 04:45 PM   #87
Full time employment: Posting here.
 
Join Date: Apr 2005
Posts: 669
I wanted to share a couple of recent post by well-known personal finance writer Jonathan Clements that deal with this topic.

The first concerns the current no-yield (negative real yield) bond environment:

https://humbledollar.com/2020/06/farewell-yield/

And the second deal with portfolio changes Clements has made as he enters quasi-retirement:

https://humbledollar.com/2020/07/my-four-goals/

Not only do I find Clement's reasons for changing his bond holdings to a "barbell" of short-term Treasuries and short-term TIPS compelling, but I find it interesting that they mirror some of the key recommendations in Part 3 of the long and technical Bridgewater paper that's been the subject of much discussion on Bogleheads and other forums:

https://www.bridgewater.com/grapplin...lly-everywhere

Of course the rest of the portfolio also has to be taken into account. For Clements it's globally-diversified, small cap and value-tilted equities in abundance, while Bridgewater naturally gravitates to more exotic investments such as gold and Chinese government bonds that might make sense for a giant hedge fund trading 24/7 but are likely foolish for normal "retail" investors.

But I think the argument that bond investors are not being rewarded for taking risk, treating them as cash-like "dry powder" and looking for returns elsewhere makes a lot of sense. That said, even Bridgewater is holding a chunk of long-term Treasuries for now hoping for one last rally similar to the ones that juiced LTT returns during the first few months of this year when the sky was falling.
kevink is offline   Reply With Quote
Old 08-26-2020, 04:47 PM   #88
Moderator
braumeister's Avatar
 
Join Date: Feb 2010
Location: Flyover country
Posts: 18,180
Thanks for those links. Clements is very highly regarded by many of us here.
__________________
I thought growing old would take longer.
braumeister is offline   Reply With Quote
Old 08-26-2020, 05:52 PM   #89
Full time employment: Posting here.
 
Join Date: Apr 2005
Posts: 669
Quote:
Originally Posted by braumeister View Post
Thanks for those links. Clements is very highly regarded by many of us here.
Add me to the long list of admirers. He's one of the few finance guys I read consistently anymore. Clear and concise, though he is a real investor (buying MORE stocks during the March meltdown) while I am much more risk-averse.

I sure admire his writing though and think his Humbledollar.com site is one of the best resources on the web.
kevink is offline   Reply With Quote
Old 08-27-2020, 06:49 AM   #90
Full time employment: Posting here.
 
Join Date: Oct 2015
Posts: 585
I continue to ponder my fixed allocation strategy as well. Despite the last 12 month or YTD run up in total return performance of bond funds/ETFs, how much longer should we keep short/intermediate bond funds in our fixed allocation?? Forget about yield, can they continue to act as a true ballast? Will the next recession/big equity drop cause a run to safety in bonds or will it be cash? I, like many, am surprised by the recent total return on bond funds, but how much runway is left? Is it time to really start thinking about substituting annuities as part of your fixed allocation?? Will gold and silver be the new flight to safety (like they keep saying on all those TV commercials? ) Are things "different this time?"
DawgMan is offline   Reply With Quote
Old 08-27-2020, 06:57 AM   #91
Thinks s/he gets paid by the post
VanWinkle's Avatar
 
Join Date: Oct 2017
Location: Brighton
Posts: 1,731
Quote:
Originally Posted by DawgMan View Post
I continue to ponder my fixed allocation strategy as well. Despite the last 12 month or YTD run up in total return performance of bond funds/ETFs, how much longer should we keep short/intermediate bond funds in our fixed allocation?? Forget about yield, can they continue to act as a true ballast? Will the next recession/big equity drop cause a run to safety in bonds or will it be cash? I, like many, am surprised by the recent total return on bond funds, but how much runway is left? Is it time to really start thinking about substituting annuities as part of your fixed allocation?? Will gold and silver be the new flight to safety (like they keep saying on all those TV commercials? ) Are things "different this time?"
I've decided "Don't just do something, Stand there". I still think intermediate indexed bond funds with at least 50% in Government securities are the best place to be if you are looking for some ballast, and some income. I can't time interest rates any better than timing the stock market.
Both are unpredictable in the next 10 years.
__________________
Retired May 13th(Friday) 2016 at age 61.
VanWinkle is offline   Reply With Quote
Old 08-27-2020, 06:59 AM   #92
Thinks s/he gets paid by the post
 
Join Date: Jul 2013
Posts: 1,127
Quote:
Originally Posted by DawgMan View Post
Are things "different this time?"
I don't think so.

Bond funds shouldn't be owned for capital appreciation. The double digit return of bonds recently is nice, but it will be reversed at some point in time. And when it happens, people shouldn't be surprised/disappointed.

That's life.
mrfeh is offline   Reply With Quote
Old 08-27-2020, 07:04 AM   #93
Thinks s/he gets paid by the post
 
Join Date: Sep 2014
Location: The Great Wide Open
Posts: 2,689
Quote:
Originally Posted by braumeister View Post
Thanks for those links. Clements is very highly regarded by many of us here.
+10
__________________
Give me Liberty or give me Death. Patrick Henry
Winemaker is offline   Reply With Quote
Old 08-27-2020, 07:06 AM   #94
Full time employment: Posting here.
 
Join Date: Oct 2015
Posts: 585
Quote:
Originally Posted by VanWinkle View Post
I've decided "Don't just do something, Stand there".
That’s 2 of us!

I could have written the same post for the last 3 + years... what do I know!

You think those gold salesmen are on to something?! 😳
DawgMan is offline   Reply With Quote
Old 08-27-2020, 07:47 AM   #95
Thinks s/he gets paid by the post
 
Join Date: Jun 2016
Posts: 4,033
Super short term analysis so take it for what it’s worth. I made a number of investments on or near June 26th of this year. I just checked on their returns so far. Returns are rounded.

Multi sector bond fund fund, up 1% PTIAX
High yield bond fund up 4% ARTFX
Large cap global managed mutual fund up 14% BGAFX
Emerging market managed fund up 20% ARTYX
COcheesehead is offline   Reply With Quote
Old 08-27-2020, 07:52 AM   #96
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
OldShooter's Avatar
 
Join Date: Mar 2017
Location: City
Posts: 6,542
Quote:
Originally Posted by COcheesehead View Post
Super short term analysis so take it for what it’s worth. I made a number of investments on June 26th of this year. I just checked on their returns so far. Returns are rounded.
Multi sector bond fund fund, up 1%
High yield bond fund up 3%
Large cap world managed mutual fund up 14%
Emerging market managed fund up 20%
Really, though, over that short a period you are just getting noise measurements and, in this case, the effects of the dollar's recent slide. I look at a two-year record when I am being impatient and a little silly. Five and ten year records when I am not.
OldShooter is offline   Reply With Quote
Old 08-27-2020, 07:59 AM   #97
Thinks s/he gets paid by the post
 
Join Date: Jun 2016
Posts: 4,033
Quote:
Originally Posted by OldShooter View Post
Really, though, over that short a period you are just getting noise measurements and, in this case, the effects of the dollar's recent slide. I look at a two-year record when I am being impatient and a little silly. Five and ten year records when I am not.
Completely agree. Just thought it was an interesting exercise in looking at returns of some pretty different asset classes.
It came to my attention because I am past the 60 day window on one and I am selling it.
COcheesehead is offline   Reply With Quote
Old 08-27-2020, 09:45 AM   #98
Recycles dryer sheets
 
Join Date: Aug 2020
Posts: 71
Well the Fed (Powell) just said today what in essence to me was we are not raising rates meaningfully or at all for about 2 years. That's my take anyways.

Seemed a lot of talk about they were surprised inflation did not go up when we were at super low unemployment. Intuitively to me, this is not surprising. It is illustrative of fact that low unemployment with a bunch of people making wages where they work 1,2, or 3 jobs to make ends meet will not cause inflation.

So if we accept that rates will remain low for the medium term at best that may influence the people a bit here who have believed for 10 years now rates would increase and cause bond values to decline.
npage is offline   Reply With Quote
Old 08-27-2020, 11:31 AM   #99
Full time employment: Posting here.
 
Join Date: Dec 2018
Posts: 659
Quote:
Originally Posted by gabrewer View Post
Hi all;
I was thinking about creating a thread, but found this one that seems to be dealing with the issue I've been pondering. I've been quite perplexed recently over the "disconnect" between interest rates and the total return I've been seeing on some of the bond funds I have money in. I own VBILX which has a 12 month total return of 11.74% (as of 7/31) and a yield of .99% (as of 8/25). My wife's IRA has VWESX, which has a total return of 22.47% and yield of 2.21% (same dates)

Anyway, just wanted to throw that out there for what it's worth. Although there's already been a lot of feedback on this thread, I would welcome anything else anyone wants to day.

Cheers.
To explain this....
VBILX top ten holdings are 10 Treasuries with coupon rates of 0.625%, 3.125%, 2.25%, 1.5%, 1.625%, 2.625%, 1.625%, 2.875%, 1.625%, 2.375%

Point number one: "Price of bonds move in opposite direction to the yield". The current yield of a "new" 10 year treasury is currently 0.69%. This means the price of 9 of 10 treasuries within VBILX described above are more valuable than the face value. For example an "existing" $1000 treasury bond with a yield of 2.875% is more valuable than a "new" $1000 treasuries bond with the current yield of 0.69%. Hence you can sell the $1000 treasury bond with a yield of 2.875% for, say, $1100 on the secondary market. Treasuries are considered a safe haven and some investors want a higher yield than 0.69% so they are willing to pay the higher price. The $100 higher price is offset by the higher yield by the buyer.

Point number two: The yields of the existing treasuries within VBILX are fixed and does not change until the maturity date. Hence, as the interest rate of "new" treasuries decreases to 0.69%, it has no effect of the yield of the existing treasuries within VBILX until the treasuries reaches their maturity dates. However, it does affect VBILX if new investors buy VBILX and the money manager has to buy treasuries at 0.69%. There is a long term impact but the effect depends on the number of new buyers of VBILX and the effect is generally gradual because the percentage of new treasuries is small compared to the percentage of existing treasuries.

Summary: Declining interest rates are causing VBILX to gain 12.74% in the last 12 months because yield and price moves in opposite direction.

Be aware that the opposite is also true. If the yield of new treasuries increases to 4%, this means the price of VBILX declines because who wants to buy treasuries at 2.875% on the secondary market when investors can buy new treasuries at 4%? In this situation, the money manager has to wait until the maturity date to get the principle back. However, if owners of VBILX shares decide to sell because equities becomes a better investment than treasuries, then the money manager is forced to sell treasuries at the market value which may translate to a decline in VBILX.

I hope my explanation help you understand the "bizarro" world of bonds.

Ref:
https://www.thebalance.com/why-do-bo...ections-417082
vchan2177 is offline   Reply With Quote
Old 08-27-2020, 01:08 PM   #100
Recycles dryer sheets
 
Join Date: Aug 2020
Posts: 71
Quote:
Originally Posted by vchan2177 View Post
To explain this....
VBILX top ten holdings are 10 Treasuries with coupon rates of 0.625%, 3.125%, 2.25%, 1.5%, 1.625%, 2.625%, 1.625%, 2.875%, 1.625%, 2.375%

Point number one: "Price of bonds move in opposite direction to the yield". The current yield of a "new" 10 year treasury is currently 0.69%. This means the price of 9 of 10 treasuries within VBILX described above are more valuable than the face value. For example an "existing" $1000 treasury bond with a yield of 2.875% is more valuable than a "new" $1000 treasuries bond with the current yield of 0.69%. Hence you can sell the $1000 treasury bond with a yield of 2.875% for, say, $1100 on the secondary market. Treasuries are considered a safe haven and some investors want a higher yield than 0.69% so they are willing to pay the higher price. The $100 higher price is offset by the higher yield by the buyer.

Point number two: The yields of the existing treasuries within VBILX are fixed and does not change until the maturity date. Hence, as the interest rate of "new" treasuries decreases to 0.69%, it has no effect of the yield of the existing treasuries within VBILX until the treasuries reaches their maturity dates. However, it does affect VBILX if new investors buy VBILX and the money manager has to buy treasuries at 0.69%. There is a long term impact but the effect depends on the number of new buyers of VBILX and the effect is generally gradual because the percentage of new treasuries is small compared to the percentage of existing treasuries.

Summary: Declining interest rates are causing VBILX to gain 12.74% in the last 12 months because yield and price moves in opposite direction.

Be aware that the opposite is also true. If the yield of new treasuries increases to 4%, this means the price of VBILX declines because who wants to buy treasuries at 2.875% on the secondary market when investors can buy new treasuries at 4%? In this situation, the money manager has to wait until the maturity date to get the principle back. However, if owners of VBILX shares decide to sell because equities becomes a better investment than treasuries, then the money manager is forced to sell treasuries at the market value which may translate to a decline in VBILX.

I hope my explanation help you understand the "bizarro" world of bonds.

Ref:
https://www.thebalance.com/why-do-bo...ections-417082
I would think this largely applies to muni bond funds as well. If Vanguard today has a fund holding a bunch of bonds paying 5% it is more valuable given rates a current bond would go for.
npage is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Managed Bond Funds rather than Index Bond Funds? ER Eddie FIRE and Money 69 03-18-2019 10:27 AM
What do you think about Multi Asset Bond Funds instead of Core Bond Funds Glad to be retired Stock Picking and Market Strategy 2 10-24-2017 09:41 AM
Bad debt in the bond mutual funds rayinpenn FIRE and Money 20 07-02-2015 05:43 AM
bond funds bad in IRA? GrayHare FIRE and Money 23 06-25-2014 09:24 PM
Is now a good or bad time for bond funds LA_Newsboy FIRE and Money 34 12-27-2003 09:23 AM

» Quick Links

 
All times are GMT -6. The time now is 01:01 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2021, vBulletin Solutions, Inc.