When to get back in to bond funds?

[daylatedollarshort]

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Originally Posted by Strevlac A bond fund is just a collection of bonds, constantly maturing and re-buying. So while the fund as a whole lacks a "maturity date" the NAV will always "go back up to current levels" over time (roughly the "duration" of the bond fund) unless interest rates start going up and keep going up and never stop going up. That is unlikely to happen. And over 35 years it's a pretty good bet that rates will go up, and then they will go down, and then they will go up again, then they will move sideways for a bit, then go down, and then up, etc etc.

I would agree with you most years, but we are at historic interest rate lows right now. My concern is that there isn't much room for yields to go down and a whole lot they could go up. I've still been buying longer maturities, but using ladders with rolling average rates and holding the individual bonds / CDs to maturity.

[daylatedollarshort]

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Originally Posted by Coolius Perhaps, if there are enough members interested, a separate thread could be started ?

I have nothing to contribute to the topic but it is something I would be interested in learning about.

[Lsbcal]

Quote:

Originally Posted by daylatedollarshort I would agree with you most years, but we are at historic interest rate lows right now. My concern is that there isn't much room for yields to go down and a whole lot they could go up. I've still been buying longer maturities, but using ladders with rolling average rates and holding the individual bonds / CDs to maturity.

The issue is how fast rates might go up in the maturity range one is interested in.

For instance, the Total Bond Mkt fund (VBMFX) has a SEC yield of 1.9%. If rates only go up 0.5% over the next year, one will still get some return out of it. Who knows about inflation though. Even if rates go up slowly, inflation may steal a lot of the yield. Real rates may be negative for a period of time.

But one has to put the money somewhere and bonds are for safety of principle, with the hope of a real return over several years. Any one year can have negative real returns.

[Strevlac]

Quote:

Originally Posted by daylatedollarshort I would agree with you most years, but we are at historic interest rate lows right now. My concern is that there isn't much room for yields to go down and a whole lot they could go up. I've still been buying longer maturities, but using ladders with rolling average rates and holding the individual bonds / CDs to maturity.

Yeah. I might argue that what you have really done is created your own little bond fund but whatever works for you. CDs aren't a bad alternative provided you can get out without too much of a penalty. Lots of people are using CDs instead of traditional bonds and I can't really argue with it, but it seems like a lot of work for not much (if any) reward.

I just don't understand the argument for holding individual bonds vs bond funds. Individual bonds have a market value just like bond funds, and are also a PITA. If you are holding for income, then you are holding for income. Both work fine for that purpose. If you are holding with the intention of selling before maturity, and interest rates rise sharply you are going to take a hit no matter what.

It's all much ado about not much. Bonds wont make you rich and they wont make you poor. They are just bonds. As long as you have some equities over here, some fixed income over there, go fishing and don't worry about it.

[Mulligan]

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Originally Posted by Golden sunsets Hi Mulligan; I am wondering why BGE-B and not also BGLEN which is currently at 103.50 with a yield of 6.5%. Is it the above par premium on this one that makes BGE-B preferable? Also QOL shows that BGLEN is elligible for the 15% div rate while BGE-B is shown as not qualifying for 15% treatment. Are there any differences between these two preferred issues that I am not seeing?

Ah, Golden.... That has been for me chasing the Great Yeti in the Himalayan Mountains. I like it but have not been patient enough to get it. It doesnt trade very often as most of those shares appear to be locked up in institutional vaults (as many of the old electric preferred utiltity stocks are). It will probably take a 100 share bid with patience to wait for someone to sell at a price around that point. BGE-B is more liquid and easier to get. It is a "trust preferred" so it is one step higher also on the dividend paying food chain. But I would prefer to have BGLEN or BGLEH for the yield, but BGE-B was just easier to snag.
Remember these are past call issues, so you don't want to buy too far above the $100 par price because if they call the issue, they will only pay you $100. Always look to see if they have declared next dividend. They have announced Julys dividend so that mitigates the risk by $1.67. They haven't shown any desire to call any of their issues, but you do not want to assume that to be too far above par.
The value in this issues such as BGLEN is they are "yield trapped" issues. They cant soar in stock price to that natural market yield price because the risk of call. They cant drop in price much because only a fool would pass up on a near 7% guaranteed yield. So you take your minimal risk of a call by buying near par and collecting the big dividend as long as they are willing to keep issue around. If you can get it!


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[Mulligan]

Quote:

Originally Posted by Golden sunsets Hi Mulligan; I am wondering why BGE-B and not also BGLEN which is currently at 103.50 with a yield of 6.5%. Is it the above par premium on this one that makes BGE-B preferable? Also QOL shows that BGLEN is elligible for the 15% div rate while BGE-B is shown as not qualifying for 15% treatment. Are there any differences between these two preferred issues that I am not seeing? PS Thanks for your insight and willingness to share

I forgot to answer last part, Golden. BGE-B is in my Roth account. That is a very good point to bring up. The "baby bonds" or non 15% preferreds always go into my HSA or Roth. A special shout out to fellow member Moorebonds for getting my head screwed on right with those types of purchases.


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[Mulligan]

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Originally Posted by Coolius The entire area of preferred stock/ETD is not widely known. In the past when equities were the rage, and bonds were the " quality and risk-off " alternative, few regarded Preferred Stock as a worthwhile investment vehicle. Today, this antiquated perception is what keeps the sector from being overheated, which I believe is why it continues to offer value. Yes, there are pros & cons, one still needs Due Diligence as with everything else. The Preferred sector, for the past few years has been providing the bulk of my retirement income, ( I have no pension ). Average yield for the past few years has been 5.7%. Like Mulligan says, there are many great websites that provide a very comprehensive grasp of this sector - I suggest QuantumOnline as a start. Perhaps, if there are enough members interested, a separate thread could be started ?

Coolius, maybe just maybe there are other people who drink the preferred koolaid? Your above point helped accelerate my interest in them. Bonds and especially treasuries are of course near record low yields. But historically speaking the spread between preferreds and treasuries are still unusually wide validating your statement that the "overheating" isn't as high in some of the preferreds. The price history of some of my preferreds show the same price today with 2.2% treasury yield as they did when the 10 year was over 4%. Who knows the future though....


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[Totoro]

If we could create a corner discussing preferreds somewhere I'd be very interested (pun not intended).

Also don't have much to contribute though ..

[LiveBelowMeans]

If you want a hands off approach to preferreds, you might want to look at PFF the largest preferred etf with $13.3 billion in assets. Yields around 6%. JMHO

[Golden sunsets]

Quote:

Originally Posted by Totoro If we could create a corner discussing preferreds somewhere I'd be very interested (pun not intended). Also don't have much to contribute though ..

+1.

And thanks Mulligan-just the type of info I was looking for. I think I'll start a string on Preferred's with a stupid question to get it started.

[Nunthewiser]

^^ I'm all ears . Edgermakate me, please