Anyone Else still holding Bond Funds?

[friar1610]

I’m holding onto my Total Bond Fund for now. I’ve always subscribed to the idea of diversifying my fixed income as well as my equities. So I hold a fair chunk of fixed in I-Bonds, CDs and cash in addition to TBF. As several of the CDs mature during the summer and fall, I’ll likely jump on the Treasury ladder bandwagon, particularly if the Treasurys continue to outearn CDs.

 

[Bergamo]

Treasury Direct publishes an annual auction calendar so you can see the dates the auctions take place. I buy mine through my Schwab account as they have a page where you can do all this. You can even buy treasuries after market as they are sold through the bond desks at the brokerages.

Here's a link to the current auction schedule:

https://home.treasury.gov/system/files/221/TentativeAuctionScheduleQ22022.pdf

Thanks. I understand bills are sold by $1000 amounts. Later on if you want to sell a few bills either for cash or for rebalancing purposes, can you sell just a few bills and leave the rest of the lot untouched?

 

[rkser]

I sold my Total Bond (VBTLX) a few months ago at a pretty healthy loss. However, I held on to my Short Term Investment Grade (VFSUX) and my Intermediate Term Tax Exempt (VWIUX). The total of these holdings is high in the 6 figures. Losses are a bit more than 40K at this point. I have had both these funds for many years.

I have always subscribed to the Buy and Hold philosophy, that Bonds are the Ballast, the safety net....that Bonds zig when stocks zag and blah, blah, blah. I have kept telling myself to stay the course and stick with my IPS. However, with large pending rate increases, it seems that Bonds have a lot more falling to do. Dividend payments should slowly increase, of course, but it is going to take a lot of years to make up for the losses.

Now I am wondering if I should just suck it up, lock in my losses and plop the money in short term cd or treasury ladders until the rate increases stabilize. It goes against my IPS but this environment is challenging my prior thoughts.

Hindsight is 20/20.

So....anyone else still holding bond funds and staying the course?

Still learning,
KooK

Yes, I am doing Roth Conversions, so I am selling my main Bond ETF BND in the IRA and buying VTI in the Roth.
Yes a difficult situation to be in, but selling BND roughly around 10% down & buying VTI at around 20% down & hoping when Stocks come back up in Roth, it will be worth it. Well, time will tell.....

We are retired, I am liquidating VWIUX & VBIRX from Taxable accounts in small numbers for living expenses, as most of our expenses are covered by dividends. SS will be at age 70

During present time, hoping Bonds will come to rescue during Bear Stock Market was & is a lot of b&#@X+.

I am glad we will still be OK, unless it will be a Japan like situation. I am trying to not look at the Market these days, but the bad news is right on TV.

 

[aja8888]

Thanks. I understand bills are sold by $1000 amounts. Later on if you want to sell a few bills either for cash or for rebalancing purposes, can you sell just a few bills and leave the rest of the lot untouched?

Yes, you can sell them individually.

 

[audreyh1]

So does the treasury use recent auctions to start the starting bids so to speak? They must have some starting coupon rate right or how would I know what ot bid? I'm picturing a world where we had paper, would they have printed a bunch of notes that said 3.5% on them and said bid away?

I’m sure it’s influenced by recent rates, but it is an auction after all. Some details here: https://www.treasurydirect.gov/instit/auctfund/work/work.htm

 

[jollystomper]

Still holding on to my short and intermediate term bond funds, they are munis, and I am still reinvesting the dividends. I would only sell if I choose to do tax loss harvesting.

The majority of the bonds in my AA are in my 401K stable value bond fund, and no need to touch that.

 

[Koolau]

Still holding on to my short and intermediate term bond funds, they are munis, and I am still reinvesting the dividends. I would only sell if I choose to do tax loss harvesting.

The majority of the bonds in my AA are in my 401K stable value bond fund, and no need to touch that.

I have high hopes that my stable value fund will soon begin to edge up on its returns. In this high inflation environment, my SV is now a drag on the port.

 

[madatrub]

I sold my Total Bond (VBTLX) a few months ago at a pretty healthy loss. However, I held on to my Short Term Investment Grade (VFSUX) and my Intermediate Term Tax Exempt (VWIUX). The total of these holdings is high in the 6 figures. Losses are a bit more than 40K at this point. I have had both these funds for many years.

I have always subscribed to the Buy and Hold philosophy, that Bonds are the Ballast, the safety net....that Bonds zig when stocks zag and blah, blah, blah. I have kept telling myself to stay the course and stick with my IPS. However, with large pending rate increases, it seems that Bonds have a lot more falling to do. Dividend payments should slowly increase, of course, but it is going to take a lot of years to make up for the losses.

Now I am wondering if I should just suck it up, lock in my losses and plop the money in short term cd or treasury ladders until the rate increases stabilize. It goes against my IPS but this environment is challenging my prior thoughts.

Hindsight is 20/20.

So....anyone else still holding bond funds and staying the course?

Still learning,
KooK

I sold all my bond funds a few weeks back. I dont see a scenario in my thesis where they are worth holding. I'll get back into them, but not in the short term.

 

[Graybeard]

I sold my Total Bond (VBTLX) a few months ago at a pretty healthy loss. However, I held on to my Short Term Investment Grade (VFSUX) and my Intermediate Term Tax Exempt (VWIUX). The total of these holdings is high in the 6 figures. Losses are a bit more than 40K at this point. I have had both these funds for many years.

I have always subscribed to the Buy and Hold philosophy, that Bonds are the Ballast, the safety net....that Bonds zig when stocks zag and blah, blah, blah. I have kept telling myself to stay the course and stick with my IPS. However, with large pending rate increases, it seems that Bonds have a lot more falling to do. Dividend payments should slowly increase, of course, but it is going to take a lot of years to make up for the losses.

Now I am wondering if I should just suck it up, lock in my losses and plop the money in short term cd or treasury ladders until the rate increases stabilize. It goes against my IPS but this environment is challenging my prior thoughts.

Hindsight is 20/20.

So....anyone else still holding bond funds and staying the course?

Still learning,
KooK

I sold all of my Short Term Investment Grade Admiral shares on 6/9 losing ~$6k. Today I sold all of my Ultra Short Term Bond Fund Admiral shares, I
forget the loss but it's thousands. This is in my Rollover IRA, I put the proceeds into my settlement fund and will buy 13 week T bills each week for the rest of the year. I always reinvested the dividends from bond funds but despite holding 2 short duration funds I've lost a lot but nowhere near your losses.

I need to wait 30 days from 5/31 so I can sell my Intermediate Term Tax Exempt Bond Fund Admiral shares in my taxable account and use the loss to offset income over the next 3 years. I changed the reinvesting of cap gains and dividends into my settlement account today also. I will start to buy 13 week T bills with the money come early July.

I have come to realize that bond funds are weapons of monetary destruction in a rising rate environment even short term funds. I have had enough, it wasn't easy to do this but there is no option as rates are going up fast and will cause larger losses.

While many are holding tight, I think your age has a lot to do with how you think about this. I need to start RMDs this year and I would sell bond funds but they are down a lot with equities by much more. This is why I decided to get out of the bond funds and stop losing money. When I decide to take the RMD I'll start accumulating the proceeds of maturing T bills or equities if they recover by year end.

 

[Graybeard]

Me If I bought and sold during periods of market volatility like this, I'd be broke by now. Market timing never works for me so I am just holding on tight for now.

I would not view this as market timing when you sell a bond fund and buy Treasuries, you're swopping one fixed income investment for another. We know rates are going up tomorrow and in July and in September and may be 150 or 200 basis points higher in 3 months, that'll continue to erode your holdings.

I never owned a bond in the past, I always bought bond funds but I started to research TLH and how to buy Treasuries so I have some degree of confidence how to do this and that for me it makes sense.

 

[npage]

I’m sure it’s influenced by recent rates, but it is an auction after all. Some details here: https://www.treasurydirect.gov/instit/auctfund/work/work.htm

Thanks, this is the interesting thing to me, if one were to put a non competitive bid in today for an upcoming auction, you don't really know the rate. You are basically saying here's how much I have, I take what you get if I read right. I understand current market rates will drive it though.

"Noncompetitive bidding is limited to purchases of $5 million per auction. With a noncompetitive bid, a bidder agrees to accept the rate, yield, or discount margin determined at auction."

 

[yakers]

While a balanced not a bond fund, much of my bond AA is in VBIAX VG 60/40 balanced fund with the 40 part =to BND. So If I wanted to reduce bonds I would have had to sell it and get maybe VTI and some bond fund or indivual bond. Its not that it is too much work but the balanced fund is designed to keep my hands off and if I tried to split out the bond alloacation I would be trying to time in and out of stocks and bonds. So I just hold on, fortunately VBIAX is ED & I Roth holding which are intended to pass on to our sons unless an emergency arises. These last few days everything is down, stocks, bonds and cash depreciating. This too will pass. Could I do something better? Probably but doing nothing for 20+ years has worked well.

 

[audreyh1]

Thanks, this is the interesting thing to me, if one were to put a non competitive bid in today for an upcoming auction, you don't really know the rate. You are basically saying here's how much I have, I take what you get if I read right. I understand current market rates will drive it though.

"Noncompetitive bidding is limited to purchases of $5 million per auction. With a noncompetitive bid, a bidder agrees to accept the rate, yield, or discount margin determined at auction."

I believe that when we sign up through our broker to buy new treasury issues at auction, we are entering non-competitive bids. Somyeah, we are relying on the “big boys” to do the hard bargaining and going along fr the ride.

No, you don’t know the rate ahead of time.

 

[npage]

Makes sense. I see no reason then for me to buy a new issue at auction via vanguard than just grabbing one in secondary.

I suppose buying at auction maybe you get close to 100 par purchase at the then prevailing coupon rate. So for instance right now you can't find one at exact 3.5% for instance so you are paying under 100 and getting a lower semi annual payment and when matures you achieve the 3.5%. At auction day you probably can get exact 3.5% at no discount or at least very close.

 

[Bergamo]

Yes, you can sell them individually.

Thank you for confirming. That is useful in managing situations that may arise.

 

[Bergamo]

I sold all of my Short Term Investment Grade Admiral shares on 6/9 losing ~$6k. Today I sold all of my Ultra Short Term Bond Fund Admiral shares, I
forget the loss but it's thousands. This is in my Rollover IRA, I put the proceeds into my settlement fund and will buy 13 week T bills each week for the rest of the year. I always reinvested the dividends from bond funds but despite holding 2 short duration funds I've lost a lot but nowhere near your losses.

I need to wait 30 days from 5/31 so I can sell my Intermediate Term Tax Exempt Bond Fund Admiral shares in my taxable account and use the loss to offset income over the next 3 years. I changed the reinvesting of cap gains and dividends into my settlement account today also. I will start to buy 13 week T bills with the money come early July.

I have come to realize that bond funds are weapons of monetary destruction in a rising rate environment even short term funds. I have had enough, it wasn't easy to do this but there is no option as rates are going up fast and will cause larger losses.

While many are holding tight, I think your age has a lot to do with how you think about this. I need to start RMDs this year and I would sell bond funds but they are down a lot with equities by much more. This is why I decided to get out of the bond funds and stop losing money. When I decide to take the RMD I'll start accumulating the proceeds of maturing T bills or equities if they recover by year end.

Why did you decide to buy 13 week T bills each week for the rest of the year? As opposed to a ladder of some duration?

I do agree that your age has a lot to do with how you think about this. I need to start RMDs in 4 years and TBM will not recover in that time frame even if rates stopped increasing today. Unless of course the Fed dropped rates to zero again. Now this could happen but less likely. Treasuries will provide a level of certainty that TBM clearly cannot.

 

[Bergamo]

I believe that when we sign up through our broker to buy new treasury issues at auction, we are entering non-competitive bids. Somyeah, we are relying on the “big boys” to do the hard bargaining and going along fr the ride.

No, you don’t know the rate ahead of time.

That's exactly what is happening. We go along for the ride.

 

[Graybeard]

Why did you decide to buy 13 week T bills each week for the rest of the year? As opposed to a ladder of some duration?

I do agree that your age has a lot to do with how you think about this. I need to start RMDs in 4 years and TBM will not recover in that time frame even if rates stopped increasing today. Unless of course the Fed dropped rates to zero again. Now this could happen but less likely. Treasuries will provide a level of certainty that TBM clearly cannot.

I decided that 13 week T bills were a better choice than 26 week because they turn over quicker despite having a lower coupon than the 26 week. This should be able to capture the new higher coupons every 90 days but if rates were to drop then the 26 week bills would be better. I tend to think rates will not be dropping this year so that is my logic but my crystal ball is cloudy as always!

 

[npage]

Rates went up today and treasuries went down.

 

[audreyh1]

Not by much (rates). They had already anticipated a 0.75% Fed rate increase.

 

[Bergamo]

I decided that 13 week T bills were a better choice than 26 week because they turn over quicker despite having a lower coupon than the 26 week. This should be able to capture the new higher coupons every 90 days but if rates were to drop then the 26 week bills would be better. I tend to think rates will not be dropping this year so that is my logic but my crystal ball is cloudy as always!

Thank you. That does make sense. Why buy every week? Is that to capture rising rates?

 

[COcheesehead]

No reason to hold bond funds, too much drag: expenses, redemptions, management decisions.
I buy individual bonds, ladder them and hold to maturity. Haven’t lost a penny yet.

 

[mathjak107]

In real return even individual bonds lose money .

As an example ,Getting paid back 1k in 10 years is a loss is a loss is a loss when it buys less then it did..

Bond funds increase over time in rising inflation while the nav adjusts downward so you come close to individual bond returns if held for the funds duration .


A treasury bond fund that sells for 10 bucks and pays 5% the day you bought and has a duration of 5 years is no different for the most part than a 5 year bond.


The bond fund will lose 5% in nav if rates rise a point but gain an extra 1% a year getting 6% instead of 5% ….at the end of the funds duration period you end up with the same 5% as the day you bought .

No different then a 5 year bond paying 5% .

In both case though you got only 5% in a 6% world so both are behind the curve,

staying at least the funds duration and using a high quality bond fund with little credit risk will give you a total return similar to an individual bond .

both will lose money if sold before its maturity or duration if rates went up . both will see similar returns if held , less expenses in the bond fund .

however bond fund managers can do things an individual likely wont , like riding the bond curve .

so that can off set expenses

https://www.kitces.com/blog/how-bon...ve-help-defend-against-rising-interest-rates/

 

[corn18]

Yup. Holding an individual bond to duration that is paying less than current bonds is the same as holding a bond fund. Just looks better in the short run.

 

[Freedom56]

In real return even individual bonds lose money

https://www.kitces.com/blog/how-bon...ve-help-defend-against-rising-interest-rates/

Explain how you lose money buying a one year corporate note with a YTM of 6.7%. The alternative is to park cash at .75%. Those who manage their own finance know how to manage expenses in an inflationary environment.
Those who ladder short term notes can make a healthy return while rates rise. Those who buy CDs or treasuries will not suffer capital losses if they hold to maturity. Bond fund distribution yields are far too low relative to treasuries, CDs, and short term corporate notes. Many are holding too much debt with coupons as low as 0.5%. While the prices of those bonds have fallen to compensate for rising yields, the coupons are still 0.5% so distribution yields won't change until they sell those notes at a steep loss and replace them higher coupon notes. However they can only do that they have fund inflows. As I have stated many times, passive bond funds are dangerous to hold. They are not bonds. There is no return of capital. Bond funds do not protect you from market risk. Buying a bond fund that invests in treasuries is one of the dumbest moves you can make. You are taking products that have no capital risk and creating one that does for a fee.