Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Why are my bonds down?
Old 03-20-2020, 09:08 AM   #1
Recycles dryer sheets
slowsaver's Avatar
 
Join Date: Aug 2013
Location: Norcal
Posts: 153
Why are my bonds down?

I just calculated the damage on my portfolio for the recent crash. Unsurprisingly, all my stocks are way down. This should be fine, because I've "diversified" my portfolio. Then why are my bonds down 8% too?
__________________

slowsaver 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 03-20-2020, 09:10 AM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 9,910
I suspect that folks (i.e. the proverbial "markets") are in their minds questioning whether some companies will be able to pay the coupons for their bonds and/or whether some companies will be able to avoid bankruptcy.

That's today's New Reality.

And I didn't even mention the possibility of unexpected inflation. After all, you can't just print $1,500,000,000,000 of dollar bills out of thin air without some change in inflation.

Finally, don't forget that one might wish to look at total return averages and not just the "highwater mark" when examining gains and losses.
__________________

LOL! is offline   Reply With Quote
Old 03-20-2020, 09:17 AM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 27,383
Some diversified muni bond funds went down more than 12%. It looks like people in a panic or cash crunch sell them all. Most were trading way above par, and perhaps deserve to come down.

PS. I saw the inflation threat that LOL mentioned. Yes, that too.
__________________
"Old age is the most unexpected of all things that can happen to a man" -- Leon Trotsky
NW-Bound is offline   Reply With Quote
Old 03-20-2020, 09:23 AM   #4
Recycles dryer sheets
slowsaver's Avatar
 
Join Date: Aug 2013
Location: Norcal
Posts: 153
I was gonna ask -- they think Muni's are going under too? 40% of my bond portfolio is VWIUX.

I've been nagging my husband to stop holding so much cash and CDs. Now he looks pretty smart to me.
slowsaver is offline   Reply With Quote
Old 03-20-2020, 09:34 AM   #5
Thinks s/he gets paid by the post
OldShooter's Avatar
 
Join Date: Mar 2017
Location: City
Posts: 4,224
I am not a bond fund guy but I continue trying to understand. Today's Reuters story: https://www.reuters.com/article/us-h...-idUSKBN21715M confuses me. They talk about out flows and they talk about NAV prices dropping.

In recent months I have read various articles discussing liquidity concerns for bond funds as many issues are small and thinly traded. A bond fund facing redemptions might find that their NAV was actually not what they thought as they tried to sell these small issues. I wonder if that is what is happening here -- NAV of funds even not facing redemptions are affected? Any bond fund experts out there?
OldShooter is offline   Reply With Quote
Old 03-20-2020, 09:53 AM   #6
Recycles dryer sheets
slowsaver's Avatar
 
Join Date: Aug 2013
Location: Norcal
Posts: 153
Quote:
Originally Posted by OldShooter View Post
I am not a bond fund guy but I continue trying to understand. Today's Reuters story: https://www.reuters.com/article/us-h...-idUSKBN21715M confuses me. They talk about out flows and they talk about NAV prices dropping.
From the article, "The director of IMF Monetary and Capital Markets warned this month that any sudden decision by investors to sell shares in credit-focused asset managers and exchange traded funds (ETFs)could pressure them to sell riskier assets quickly."

So prices only stay high as long as people don't sell. That sounds familiar... ponzi scheme?
slowsaver is offline   Reply With Quote
Old 03-20-2020, 10:00 AM   #7
Thinks s/he gets paid by the post
 
Join Date: Aug 2016
Location: Northern Virginia
Posts: 1,409
People buy munis usually at issue and they are often held to maturity. Accordingly, many issues are thinly traded. They still may be high quality but if everyone tries to exit at once pricing will decline sharply. Supply and demand.
Montecfo is offline   Reply With Quote
Old 03-20-2020, 10:30 AM   #8
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 22,339
What time frame? A diversified bond fund (BND) is holding up pretty well. Down 3.25% YTD. Total Return, not just NAV.


https://stockcharts.com/freecharts/perf.php?SPY,bnd


-ERD50
ERD50 is online now   Reply With Quote
Old 03-20-2020, 10:34 AM   #9
Recycles dryer sheets
slowsaver's Avatar
 
Join Date: Aug 2013
Location: Norcal
Posts: 153
Down 3.25% is still down.
slowsaver is offline   Reply With Quote
Old 03-20-2020, 10:39 AM   #10
Full time employment: Posting here.
 
Join Date: Apr 2008
Posts: 614
Probably a combination of factors. One that I haven't heard but may be a possibility is if some people are re-balancing their AAs, and they may not have the cash to do so (or may not have wanted to commit what cash they had in reserve). If the stock market drop were gradual over several months, the bond funds might not have been hit so hard. But this stock market has dropped quickly and consistently.
statsman is online now   Reply With Quote
Old 03-20-2020, 10:46 AM   #11
Thinks s/he gets paid by the post
OldShooter's Avatar
 
Join Date: Mar 2017
Location: City
Posts: 4,224
Quote:
Originally Posted by statsman View Post
... may be a possibility is if some people are re-balancing their AAs, and they may not have the cash to do so (or may not have wanted to commit what cash they had in reserve). ...
Be careful with that one. I have noticed around here that we all are tempted to think small individual investors are important enough to affect the markets. With a couple of billion shares traded in a day, I strongly doubt it. Oh, and then there are those central banks and pension funds. ...
OldShooter is offline   Reply With Quote
Old 03-20-2020, 10:46 AM   #12
Moderator
sengsational's Avatar
 
Join Date: Oct 2010
Posts: 6,155
I came to the realization about bond funds (less so, individual bonds) 30 years ago. I was told they zigged when the market zagged, but that didn't happen at all then, and hasn't really happened since. If I didn't have a nice stable value fund in my 401k, I'd be using individual bonds, not bond funds. Although, if I needed to trade an individual bond to raise cash, it might be depressed in price, same as the bond fund. But it's my choice to hold to maturity.
sengsational is online now   Reply With Quote
Old 03-20-2020, 10:49 AM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Nov 2009
Posts: 5,419
I am not in bond funds to make a profit on selling shares. Instead, I am in bond funds for their monthly dividends, as I have been living off that in my 11 years of ER. What I will be interested in is what that monthly dividend (dividend per share) will be at the end of March (and beyond). Will that monthly DPS be fairly stable or will that take a hit, too?
__________________
Retired in late 2008 at age 45. Cashed in company stock, bought a lot of shares in a big bond fund and am living nicely off its dividends. IRA, SS, and a pension await me at age 60 and later. No kids, no debts.

"I want my money working for me instead of me working for my money!"
scrabbler1 is offline   Reply With Quote
Old 03-20-2020, 10:50 AM   #14
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 24,643
Quote:
Originally Posted by slowsaver View Post
I just calculated the damage on my portfolio for the recent crash. Unsurprisingly, all my stocks are way down. This should be fine, because I've "diversified" my portfolio. Then why are my bonds down 8% too?
Munis, especially high yield munis, corporate bonds, high yield bonds, and emerging market bonds have been hit pretty hard, so depending on how much of your fixed income is in those types of bonds, you might have been hit hard too.

My bond index fund is down 1.39% YTD, and my short-term bond index funds are positive YTD.

In contrast, my equity funds are down 25% to 45% YTD.
__________________
Retired since summer 1999.
audreyh1 is online now   Reply With Quote
Old 03-20-2020, 10:55 AM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
youbet's Avatar
 
Join Date: Mar 2005
Location: Chicago
Posts: 10,920
About 20% of my FIRE portfolio is in muni bond funds diversified across, short, mid and long term and even some highyield. Ouch! It's painful, as slowsaver has noted, to watch them go down along with my equities. OTOH, I'm not really worried, so far, about them being able to continue to pay monthly divs and it's unlikely I'll need to sell. So, just hold and wait I guess........ I've held one of them for over 30 years.
__________________
"I wasn't born blue blood. I was born blue-collar." John Wort Hannam
youbet is offline   Reply With Quote
Old 03-20-2020, 11:03 AM   #16
Thinks s/he gets paid by the post
 
Join Date: Feb 2007
Posts: 1,291
Bond funds (as well as individual bonds) are getting hit because:
1) Sell everything to raise cash
2) Potential long term inflation
but most importantly:
3) Many "investment" grade companies are now no longer investment grade, with their current revenues falling through the floor. This will eventually be reflected in downgrades on their safety. There are lots of investment grade bond funds (I'm looking at you Vanguard) who will be forced to sell bonds as they lose their investment grade rating.

I hold no investment grade Corporate bonds...almost all of my fixed allocation is in CD's, Inflation bonds (Tips, iBonds) and a bunch in "Stable Value" funds...and even with those there is now increased risk (but not much I can do about it). Actually there is, I could withdraw these from my 401K en mass and take the huge tax hit...so instead these sit with me assessing the risk is still low enough to not offset a huge tax hit on a 401k withdraw. (I believe the Fed and Treasury will do just about anything they can to prevent MM fund and things like stable value funds from breaking, and that they will err on the side of vastly inflationary policies if needed).

Honestly, the best we can hope for here in the market is that things get boring.
copyright1997reloaded is offline   Reply With Quote
Old 03-20-2020, 11:04 AM   #17
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 24,643
Quote:
Originally Posted by ERD50 View Post
What time frame? A diversified bond fund (BND) is holding up pretty well. Down 3.25% YTD. Total Return, not just NAV.


https://stockcharts.com/freecharts/perf.php?SPY,bnd


-ERD50
Is BND trading at a discount? The mutual funds equivalent VBMFX is only down 1.39% YTD.

I saw a high yield muni ETF trading at a huge discount to NAV a few days ago - like 5% or more. In this environment it seems like ETFs are getting sold at a discount.

I saw a headline somewhere about BND spread going to 6%. Here is something similar https://www.etfstream.com/news/10803...count-widen-6/
__________________
Retired since summer 1999.
audreyh1 is online now   Reply With Quote
Old 03-20-2020, 11:06 AM   #18
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 24,643
Quote:
Originally Posted by youbet View Post
About 20% of my FIRE portfolio is in muni bond funds diversified across, short, mid and long term and even some highyield. Ouch! It's painful, as slowsaver has noted, to watch them go down along with my equities. OTOH, I'm not really worried, so far, about them being able to continue to pay monthly divs and it's unlikely I'll need to sell. So, just hold and wait I guess........ I've held one of them for over 30 years.
The Fed is coming to your rescue.
__________________
Retired since summer 1999.
audreyh1 is online now   Reply With Quote
Old 03-20-2020, 11:12 AM   #19
Administrator
MichaelB's Avatar
 
Join Date: Jan 2008
Location: lumpen slums of cyberspace
Posts: 31,166
Quote:
Originally Posted by youbet View Post
About 20% of my FIRE portfolio is in muni bond funds diversified across, short, mid and long term and even some highyield. Ouch! It's painful, as slowsaver has noted, to watch them go down along with my equities. OTOH, I'm not really worried, so far, about them being able to continue to pay monthly divs and it's unlikely I'll need to sell. So, just hold and wait I guess........ I've held one of them for over 30 years.
Same here. Most of ours was shorter duration and still suffered badly.

Quote:
Originally Posted by audreyh1 View Post
The Fed is coming to your rescue.
Looks that way. Perhaps a good opportunity to lengthen duration a bit.
MichaelB is offline   Reply With Quote
Old 03-20-2020, 11:32 AM   #20
Thinks s/he gets paid by the post
 
Join Date: Jun 2016
Posts: 3,510
There is a lot going on in bond land right now. These are things pressuring bonds right now.
Rates bounced off a bottom
Illiquidity of issues forces selling prices down - called spread widening
Inflation fears
Forced liquidation of some portfolios so people are selling - see illiquidity issue above

Opportunities
Yield on AAA quality muni’s are at prices I haven’t seen in years. Some selling below par.

Lessons
DO NOT buy bond funds. Buy the individual issues. Funds have no maturity date and your NAV can erode.
Here’s an example.
You buy a fund with an NAV of $1000 (that would never happen, but work with me here)
You buy a bond with a par value of $1000 1 year maturity.

Markets like we have now affect both and they drop to $900.

In a year the fund may now have rebounded to $950, but the bond slowly goes back to par at $1000 over the same course of time. So in both cases I get yield, but only in one do I get my original money back.

Super simple example and other factors may apply like default, but if you stay high quality you mitigate that.
__________________

COcheesehead 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
What is happening with HY Muni Bonds today? Tracking down 14% DogGone FIRE and Money 29 03-13-2020 09:15 AM
Bonds go down with interest rate hikes? Jerry1 FIRE and Money 28 02-05-2018 10:44 AM
Pay down existing mortgage or save up for big down payment? Andre1969 Young Dreamers 13 04-29-2010 10:05 AM
Housing prices down; Stock Market down; Economy slowing; & the benefits dex FIRE and Money 32 03-16-2007 04:46 PM
Buy House Now w/Low Down or Save Bigger Down? BigMoneyJim Young Dreamers 11 07-14-2004 04:23 PM

» Quick Links

 
All times are GMT -6. The time now is 05:29 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2020, vBulletin Solutions, Inc.
×