'60/40' portfolios are facing worst returns in 100 years: Bank of America

[COcheesehead]

As mentioned, never a bond trader, but I looked for some data for discussion on this thread, and saw bonds maturing in a few years selling under par to have YTM of 6%.

The ones I reference are new, not secondary market. Available now on Fidelity and likely elsewhere. A+ rating. You can get a better yield, shorter duration if you go lower in quality.

 

[NW-Bound]

The ones I reference are new, not secondary market. Available now on Fidelity and likely elsewhere. A+ rating. You can get a better yield, shorter duration if you go lower in quality.

Yes. I saw newly issued bonds with 6% coupon rate too. They are all there, and of investment grades.

PS. By the way, the ones I saw were callable, if my memory serves. That ain't cool if the interest rate drops.

 

[COcheesehead]

Yes. I saw newly issued bonds with 6% coupon rate too. They are all there, and of investment grades.

PS. By the way, the ones I saw were callable, if my memory serves. That ain't cool if the interest rate drops.

So 6% for X years isn’t cool? OK.

 

[NW-Bound]

What's cool is the 30-year Treasury back during the 1980 high interest rate. I missed out on that.

Or the I bonds with 3.6% above inflation back in 2000, also for 30 years. I missed out on that too.

 

[Looking4Ward]

I'm sure I'm overlooking something but VWELX (Wellington 60/40) seems to have done well back in the 70's and 80's of high inflation and rising rates.

 

[COcheesehead]

What's cool is the 30-year Treasury back during the 1980 high interest rate. I missed out on that.

Or the I bonds with 3% above inflation back in 2000, also for 30 years. I missed out on that too.

You might have a chance again, real soon.

 

[NW-Bound]

You might have a chance again, real soon.

OK. I am passing on the 6% callable bonds.

 

[COcheesehead]

OK. I am passing on the 6% callable bonds.

I know you’re in equities. Have fun.

 

[11522914]

One thing that in another thread and in an exchange with Freedom56, I suggested that perhaps one advantage of holding individual bonds vs. a bond fund is that you control the buying/selling.

Basically, my premise is this. If you want to buy/hold, but your fellow bond fund shareholders are bailing out en masse, the fund manager has no choice but to sell low to raise cash to meet redemption. And because bonds are not as liquid as stocks, this can cause further price depression.

Now, how do I find data to prove/disprove this theory? It should be possible to build a sample bond ladder, and hold every bond to maturity, and add up the coupons to see how it looks compared to BND. I just don't know where to get the data to do that.

You can find bonds here and see how they traded over different time frames

https://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C647473&symbol=GS4337809

I put in a bond from GS

This chart shows why we may be entering the "Golden Period". [emoji16]

 

[NW-Bound]

As mentioned, I don't have any bond other than 100 shares of BND, plus whatever bonds are inside Wellesley+Wellington, and these funds add up to a mere 1.5% of portfolio.

But if I see something like 30-year Treasury in 1980, or I bonds with 3.6% above inflation in 2000, I will pounce.

PS. I currently have a few hundred grands in I bonds, accumulated back in the early 2000s when one could still buy 30 grands each year. However, I learned about I bonds too late and missed out on the 3.6% issues. Darn! Mine pay only 1% to 1.2% above inflation.

 

[NW-Bound]

You can find bonds here and see how they traded over different time frames

https://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C647473&symbol=GS4337809

I put in a bond example from GS

OK. I will see if it gives me the info that's not easy to get from Schwab.

For the purpose of my comparison to BND, I want a list of all corporate bonds issued in 2007. Can I do that on FINRA site?

 

[11522914]

OK. I will see if it gives me the info that's not easy to get from Schwab.



For the purpose of my comparison to BND, I want a list of all corporate bonds issued in 2007. Can I do that on FINRA site?

I honestly don't know. I've used this to track bonds I'm interested in.

It does give you an idea how volatile bonds can be in a rising interest rate environment.

 

[youbet]

You added the word “short” so let’s not twist the original post, but I just bought two 6% 5 year duration bonds at par.

What type of bonds? Rating? Maturity?

I just threw in the word "short" since the general discussion here has been talking about maturities short enough that there is no need to "mark to market." You just hold to maturity (a few years or less) and collect when they mature. As opposed to long term bonds where you are indeed a fool if you don't "mark to market" since their maturity dates may be many years out.

Also, we're talking maturity, not duration.

 

[COcheesehead]

What type of bonds? Rating? Maturity?

I just threw in the word "short" since the general discussion here has been talking about maturities short enough that there is no need to "mark to market." You just hold to maturity (a few years or less) and collect when they mature. As opposed to long term bonds where you are indeed a fool if you don't "mark to market" since their maturity dates may be many years out.

Also, we're talking maturity, not duration.

Look up thread. I posted all the details. I also don’t think you understand duration or what mark to market even means. Every bond no matter the duration is marked to market every day the market is open.

 

[youbet]

Guess I caught ya, huh?

 

[COcheesehead]

Guess I caught ya, huh?

?

 

[11522914]

Look up thread. I posted all the details. I also don’t think you understand duration or what mark to market even means. Every bond no matter the duration is marked to market daily.

You're not kidding about mark to market.

When I started buying my first ever individual bonds in June, I entered them in Quicken. Like everything else I had it was priced daily.

I thought why do I care about pricing since I'm holding to maturity anyway. I could have stopped the quotes from downloading but then my Quicken account values were off.

And I didn't like that [emoji2957]

So I watched with interest[emoji16] how in July/August the 10 year rate dropped and some bonds were worth more than I paid. Cool.

But now the 10 year is much higher and most are under water. Lol.

No matter still holding to maturity.

 

[daylatedollarshort]

This is market timing, and I have been a self-proclaimed market timer but with stocks.

Yes, market timing can give you good returns. The hard part is to be able to do it consistently, year after year.

You can call it market timing. I call it not being oblivious to what is going to happen to bond prices when there is high inflation and the Fed says they are going to raise interest rates 6 - 7 times in the coming year. They don't do that year after year. Inflation hasn't been this high since the 80s. There is no Fed for the stock market, so to call both market timing is comparing apples and oranges. Moderating long-term interest rates in the U.S. economy is on the Fed's web site as a part of their mission statement.

 

[COcheesehead]

You're not kidding about mark to market.

When I started buying my first ever individual bonds in June, I entered them in Quicken. Like everything else I had it was priced daily.

I thought why do I care about pricing since I'm holding to maturity anyway. I could have stopped the quotes from downloading but then my account values were off.

And I didn't like that [emoji2957]

So I watch with interest how in July/August the 10 year dropped and some bonds were worth more than I paid. Cool.

But now the 10 year is much higher and they're all under water. Lol.

No matter still holding to maturity.

As they get closer to maturity, they will move back to par or if rates drop they will gain and you can decide to sell prior to maturity.

 

[NW-Bound]

In 1981, 30-year Treasury rate reached 15%. I was just out of grad school in 1980, young and ignorant, and also not having much money to take advantage of it to lock in the 30-year juicy rate. Tough to save much money after paying 14% mortgage rate.

And then, in 2000, I was caught up in the stock mania and did not learn of the 3.6%-above-inflation I bonds. And in 2000, inflation was 3.4%, so these I bonds paid 7%. Heck, people were chasing stocks going up 7% in a day.

Well, I have more money now, and also learn a few things over the years. At some time, I will put the cash I have now in TSTXX into bonds when it feels right. Been waiting for higher interest rates for years. No, more than 2 decades now. Then retire into the sunset.

Oh wait! I am already retired. The only thing left to do is to die.

 

[Katoslake]

If you want to subtract 8% from cash due to inflation, you have to subtract the same from bond and stock values as well, increasing their losses much more.

In this environment, cash has still been king from the start of this year.

Exactly ! Keep hearing stocks are the only inflation hedge, which may turn out to be true. YTD it’s not.

 

[audreyh1]

Exactly ! Keep hearing stocks are the only inflation hedge, which may turn out to be true. YTD it’s not.

That is definitely over the long term. Over the very short term stocks are punished when interest rates jump.

 

[NW-Bound]

Exactly ! Keep hearing stocks are the only inflation hedge, which may turn out to be true. YTD it’s not.

In the long run, maybe. Short-term, everybody loses.

But then, talking about the long run made me look up some data for a bad period in the past, so we have something to look at.

In 1972, the inflation rate was 3.2%. In 1973, it jumped to 6.2% and stayed high, reaching 13.5% in 1980. It returned to 3.2% in 1983, after Volker raised interest rate sky-high to slay the dragon.

The cumulative inflation rate during the period of Jan 1973 - Jan 1983 was 2.30x.

What were the investment returns then? Here are some numbers I got from a Web page of NYU. All numbers include reinvestment of dividends and interests.

S&P: 2.73x

3-month T-Bill: 2.27x

T-Bond: 1.78x

Corp Bond: 2.22x

It can be seen that S&P led by a bit. Long bonds hurt the most, and that should not be surprising.

 

[11522914]

In the long run, maybe. Short-term, everybody loses.

But then, talking about the long run made me look up some data for a bad period in the past, so we have something to look at.

In 1972, the inflation rate was 3.2%. In 1973, it jumped to 6.2% and stayed high, reaching 13.5% in 1980. It returned to 3.2% in 1983, after Volker raised interest rate sky-high to slay the dragon.

The cumulative inflation rate during the period of Jan 1973 - Jan 1983 was 2.30x.

What were the investment returns then? Here are some numbers I got from a Web page of NYU. All numbers include reinvestment of dividends and interests.

S&P: 2.73x

3-month T-Bill: 2.27x

T-Bond: 1.78x

Corp Bond: 2.22x

It can be seen that S&P led by a bit. Long bonds hurt the most, and that should not be surprising.

That's some great info. I sure hope we don't go through that type of crazy inflation for so long a period.

No wonder people are nervous about future inflation.

The Fed needs to nip this in the bud quickly or we're in a heap of trouble.

And how high can rates really go with all this debt we have. The amount of debt has to put some upper limit on rates. Will that be enough to stop inflation?

What a mess we're in.

 

[NW-Bound]

That's some great info. I sure hope we don't go through that type of crazy inflation for so long a period.

No wonder people are nervous about future inflation.

The Fed needs to nip this in the bud quickly or we're in a heap of trouble.

And how high can rates really go with all this debt we have. The amount of debt has to put some upper limit on rates. Will that be enough to stop inflation?

What a mess we're in.

I just read an interesting thread about the prospect of curing high inflation here:

https://www.early-retirement.org/forums/f52/are-advanced-economies-repeating-1939-1979-a-115627.html