Why are my bonds down?

[meleana]

I am 64 and in my life experience my bonds- mostly short term- have always gone down when stocks go drown.

I am worried big time right now. Wish I was 100% in cash in Insured banks instead of money market funds.

 

[Lsbcal]

I am 64 and in my life experience my bonds- mostly short term- have always gone down when stocks go drown.

I am worried big time right now. Wish I was 100% in cash in Insured banks instead of money market funds.

If you move to short term Treasury or Treasury money market you should be fine. Is there something stopping you?

 

[slowsaver]

Happy to see my VWIUX produced a normal dividend payment yesterday. If next month's payment is the same, then I'll feel a lot better about my bond funds.

 

[meleana]

If you move to short term Treasury or Treasury money market you should be fine. Is there something stopping you?

We do have money in a Treasury Money Market and my husband still has his 401K in a stable value fund left with his former employer.


It's everything else I am unsure of- bond and stock etf's in a taxable account and mutual funds within our IRA's. Living off cash right now.


Have to keep our income super low due to ACA for me.


Our allocation was essentially 35/65 before all this craziness.

 

[Scuba]

I am 64 and in my life experience my bonds- mostly short term- have always gone down when stocks go drown.



I am worried big time right now. Wish I was 100% in cash in Insured banks instead of money market funds.

I assume at 64 you expect to live another 2-3 decades. For longer term money, wouldn’t you be better off in equities?

 

[copyright1997reloaded]

We do have money in a Treasury Money Market and my husband still has his 401K in a stable value fund left with his former employer.


It's everything else I am unsure of- bond and stock etf's in a taxable account and mutual funds within our IRA's. Living off cash right now.


Have to keep our income super low due to ACA for me.


Our allocation was essentially 35/65 before all this craziness.

One of the things I do (in situations like this) is to see what happens if the market continues down (yes, I know that doesn't seem like it would make me feel better). But hear me out for a bit. Let's say your allocation was 36/65 before all the craziness, and that the 35 (equities) fell by 26.2% (what the SP 500 is from its peak). Also assume the 65% is about even.

So then 35*(1-26.2%) = 25.83 plus the 65 = 90.8. So you've lost about 10% overall.

Now, let's assume you DO NOTHING, and the market plummets ANOTHER 50% from here but the bonds remain stable. 25.83*.5 = 12.92 (the loss from your original). So at that point you would be 12.9 + 65 = 78, so you would be down 22% from the peak....with the overall market down 63% from the peak.

In other words, subsequent equity losses become less important as they represent less of your overall wealth (unless you re-balance "too soon" on the way down).

See, I told you it would make you feel better!

Here's also what I am saying: If things really, really fall apart it won't matter where your money is, because everything will be toast ... "safe" investments included.

 

[Lsbcal]

One of the things I do (in situations like this) is to see what happens if the market continues down (yes, I know that doesn't seem like it would make me feel better). But hear me out for a bit. Let's say your allocation was 36/65 before all the craziness, and that the 35 (equities) fell by 26.2% (what the SP 500 is from its peak). Also assume the 65% is about even.

So then 35*(1-26.2%) = 25.83 plus the 65 = 90.8. So you've lost about 10% overall.

Now, let's assume you DO NOTHING, and the market plummets ANOTHER 50% from here but the bonds remain stable. 25.83*.5 = 12.92 (the loss from your original). So at that point you would be 12.9 + 65 = 78, so you would be down 22% from the peak....with the overall market down 63% from the peak.

In other words, subsequent equity losses become less important as they represent less of your overall wealth (unless you re-balance "too soon" on the way down).

See, I told you it would make you feel better!

Here's also what I am saying: If things really, really fall apart it won't matter where your money is, because everything will be toast ... "safe" investments included.

I don't know. Say I meet up with a bad guy and he threatens to chop my arm off. Then he "just" chops off my hand. Would I feel better?

With a -10% loss you need and 11% gain to make it back.

With a -22% loss you need a 28% gain to make it back.

With a -50% loss you need a 100% gain to make it back.

Sell or hold is a tough individual decision. But if you think you are going to sell, do it early in a bear market. What inning is this anyway? Didn't they cancel the baseball season?

 

[Markola]

This is my third recession as an investor but the first in which I’ve paid any attention to the income generated by my portfolio.

I compared the interest and dividend income from my 50/50 portfolio of index funds from March 2019 vs. March 2020 and the latter was down 21%. I haven’t changed my AA and, if anything, added fund shares this year since I’m still w*rking. The bond funds interest is almost identical in both months, so all of the decline was on the stock funds side.

I guess I naively hoped stock dividends, in dollar terms, wouldn’t decline that much, just the value of the shares. Wrong!

 

[2177V]

I haven’t changed my AA and, if anything, added fund shares this year since I’m still w*rking.

I read that professional portfolio managers who maintain a 50/50 portfolio reallocate to buy more equities after a severe decline. This is because after a 40% decline, their 50/50 portfolio is now about 40/60 so they transfer some bonds to equities to maintain the 50/50 portfolio.

This makes sense to me because after a 40% decline and a 40% recovery, a completely passive portfolio does NOT return to the same value. Example: $100K equities/$100 bonds goes to $60K equities/$100K bond after a 40% equities decline. If there is an immediate 40% recovery, then 40% of $60K = $24K so the equities portion of the portfolio is $60 + $24K = $84K which is less than the $100K.

I speculate that this reallocation of professional portfolio managers may be one of the causes of a mini bull market within the overall bear market.

 

[Markola]

I read that professional portfolio managers who maintain a 50/50 portfolio reallocate to buy more equities after a severe decline. This is because after a 40% decline, their 50/50 portfolio is now about 40/60 so they transfer some bonds to equities to maintain the 50/50 portfolio.

This makes sense to me because after a 40% decline and a 40% recovery, a completely passive portfolio does NOT return to the same value. Example: $100K equities/$100 bonds goes to $60K equities/$100K bond after a 40% equities decline. If there is an immediate 40% recovery, then 40% of $60K = $24K so the equities portion of the portfolio is $60 + $24K = $84K which is less than the $100K.

I speculate that this reallocation of professional portfolio managers may be one of the causes of a mini bull market within the overall bear market.

I guess so but I have target date funds that rebalance nightly and the rest of my portfolio is rebalanced, if necessary, quarterly, so my AA is kept pretty steady.

Didn’t others see big declines in stock fund yields in dollars in March 2020 compared to March 2019?

 

[socca]

Vanguard muni bond fund yield curve for 5 pm ET 4/3/20:

• VG Muni Money Market: 2.53%
• VG Short-Term Tax-Exempt: 1.95%
• VG Limited-Term Tax-Exempt: 1.82%
• VG Intermediate-Term Tax-Exempt: 1.92%
• VG Long-Term Tax-Exempt: 2.31%
• VG High-Yield Tax-Exempt: 2.89%

For reference, here is:

• VG Federal Money Market: 0.66%

Comment:

• VG Muni Money Market yield continues to drop rapidly - good news for those of us who like a normal, boring, non-crisis-mode yield curve. However, this fund still has a long way to drop before we can declare that things are back to normal.

• VG Short-Term Tax-Exempt normally yields a little less than Limited-Term Tax-Exempt and substantially less than Intermediate-Term Tax-Exempt, which is not the case now. The yield curve inversion is spreading to longer maturities within the short-term world. This is an interesting phenomenon that I'm keeping an eye on.

 

[socca]

Vanguard muni bond fund yield curve for 5 pm ET 4/6/20:

• VG Muni Money Market: 1.79%
• VG Short-Term Tax-Exempt: 1.98%
• VG Limited-Term Tax-Exempt: 1.85%
• VG Intermediate-Term Tax-Exempt: 1.98%
• VG Long-Term Tax-Exempt: 2.36%
• VG High-Yield Tax-Exempt: 2.97%

For reference, here is:

• VG Federal Money Market: 0.62%

Comment:

• the VG muni bond fund yield curve is starting to look more normal, with VG Muni Money Market yielding less than VG Short-Term Tax-Exempt. An oddity is that VG Short-Term Tax-Exempt yields more than Limited-Term Tax-Exempt and the same as Intermediate-Term Tax-Exempt. It will be interesting to see if the continuing plunge in the yield of VG Muni Money Market will eventually pull down the VG Short-Term Tax-Exempt yield.

• in normal times, VG Muni Money Market yields a bit less than VG Federal Money Market because VG Muni Money Market dividends are federal tax exempt, unlike VG Federal Money Market dividends. So, the VG Muni Money Market yield still has a long way to fall before we're back to normal.

 

[RobbieB]

My munis are back where they were after tanking 10% a couple weeks ago.

 

[Truckinalong]

V An oddity is that VG Short-Term Tax-Exempt yields more than Limited-Term Tax-Exempt and the same as Intermediate-Term Tax-Exempt.

Generally I have read that the muni yield curve is highly resistant to inversion but this appears at least flat. Interesting for sure.

 

[jazz4cash]

My munis are back where they were after tanking 10% a couple weeks ago.

Are those funds or individual bonds?

 

[socca]

I'm also tracking reported assets under management (AUM). Here are the numbers for 02/29/20. All numbers are $ billions.

• VG Muni Money Market: 18.2
• VG Short-Term Tax-Exempt: 17.3
• VG Limited-Term Tax-Exempt: 31.0
• VG Intermediate-Term Tax-Exempt: 77.4
• VG Long-Term Tax-Exempt: 15.0
• VG High-Yield Tax-Exempt: 17.7
• TOTAL: 176.6

For reference, here is :
• VG Federal Money Market: 156.5

Here are the VG AUM numbers for 03/31/20:

• VG Muni Money Market: 18.0
• VG Short-Term Tax-Exempt: 15.7
• VG Limited-Term Tax-Exempt: 28.8
• VG Intermediate-Term Tax-Exempt: 71.8
• VG Long-Term Tax-Exempt: 13.8
• VG High-Yield Tax-Exempt: 15.0
• TOTAL: 163.1

For reference, here is :
• VG Federal Money Market: 183.3

Comment:

• Considering what happened during the period 02/29/20 to 03/31/20, the decline in VG muni bond fund AUM was fairly modest. We don't know how much of the reported declines in AUM were due to client redemptions vs. decline in the market value of the bonds in the portfolios (VG knows!) The popular media reported mass panic in March as 'everyone' liquidated at-risk assets, but the numbers don't support this (at least for VG's muni bond funds).
• the $26.8B gain in VG Federal Money Market suggests that there was some flight to safety during March.

 

[Truckinalong]

So those who bought in at March bottom will do well. They question is what about now. I know market timing. I tend to think the DOW will tank again and Muni funds come down again as the NAV are susceptible to sentiment. If this all showed us nothing they are certinaly not decoupled in movement.

 

[COcheesehead]

I don’t find any compelling values in bonds right now. I am a big holder of individual muni bonds. The time to buy was 3-4 weeks ago when yields spiked. I am in hold mode right now. I have all the rungs on my ladder filled. I will have some maturing later this year and I will see what the market gives me then. Until that point, sitting tight.
FYI, I own probably close to 100 issues and have had exactly one down grade, a Texas toll road. I have also had a dozen or more upgrades. Interesting insight in a troubling time.

 

[Freedom56]

So those who bought in at March bottom will do well. They question is what about now. I know market timing. I tend to think the DOW will tank again and Muni funds come down again as the NAV are susceptible to sentiment. If this all showed us nothing they are certinaly not decoupled in movement.

I bought many bonds/notes during the March sell-off. I have started to unload some of them as they have recovered and moved well above par. The corporate bond buying is helping stabilize the market but it is also driving up prices certain bonds so high, it no longer makes sense to hold them. I want to raise my cash position to 40% and wait for the next sell-off.

 

[Truckinalong]

Sounds like if you were a long term holder buying now would fine for income but the bargain sale is gone. Will we get another opportunity, time will tell but sitting on the sidelines for a few months probably not a bad idea.

 

[RobbieB]

Are those funds or individual bonds?

Individual bonds.

 

[Freedom56]

Sounds like if you were a long term holder buying now would fine for income but the bargain sale is gone. Will we get another opportunity, time will tell but sitting on the sidelines for a few months probably not a bad idea.

I wouldn't buy investment grade corporate bonds now. The quality ones are overpriced. The one's that are yielding 12-47% I wouldn't touch. I just dumped some more bonds today and will dump some more tomorrow as more and more bids are coming in. I'm at 36% cash now. The damage to the energy, retail, and commercial real estate sectors have been done. It's a matter of time before another corporate bond sell-off starts again.

 

[jazz4cash]

Individual bonds.

That's what I figured. My individual muni bonds have recovered but my mid term single state fund is still down a bit.

 

[Markola]

Vanguard Total Bond Index Fund is up 5.21% year to date. Its average annual return since it was created in 2001 is 4.33%. Nothing fancy, no maintenance, low ER, doing its job well to provide ballast to the stock side. I’ll take it.

 

[socca]

Vanguard muni bond fund yield curve for 5 pm ET 4/20/20 (or 4/21/20):

• VG Muni Money Market: 0.50% (4/21)
• VG Short-Term Tax-Exempt: 1.94%
• VG Limited-Term Tax-Exempt: 1.87%
• VG Intermediate-Term Tax-Exempt: 2.05%
• VG Long-Term Tax-Exempt: 2.52%
• VG High-Yield Tax-Exempt: 3.29%

For reference, here is:

• VG Federal Money Market: 0.53% (4/21)

Comment:

• the VG Muni Money Market yield has dropped below VG Federal Money Market. I'm surprised how rapidly this has happened, considering that on 3/25 VG Muni Money Market was yielding ~5x VG Federal Money Market. It looks like the panic has completely disappeared from the very short end of the muni bond market.

• the steady increase in the rest of the VG muni bond fund yield curve came to a halt on 4/14. There has been a slight decrease since then across-the-board except for the high-yield muni bond fund, which has remained constant. This is another good sign for the muni bond fund market. However, the difference in yield between VG Muni Money Market and VG Short-Term Tax-Exempt is still impressive, with STTE yielding ~4x more than MMM.