Bond vs Bond Fund

[Sunset]

I suppose this makes the argument for me to sell my 6 - 10 yr bond funds now, take the loss, and buy individual bonds?

Per the article, can it really be that easy to just compare the current yields and projected interest rate direction to switch back & forth? I suppose part of the reluctance is the false comparison to stock funds that somehow they will simply come back the same way.

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If those bond funds are in a taxable account, then you will also save taxes. It's like getting a little refund on your loss.

Myself I sold some BND when it was $76.xx , wish I had sold it all, now it's $70.xx . Now I've sold it all. I'm replacing it with 3%, 4.5%, 6% bonds, and waiting a bit for rates to go up more. I'm pretty sure when the Fed rate goes up next month, that BND will drop another couple of dollars. Right now BND is full of low rate bonds.

 

[mojavesue]

I sold all of our BND a couple of months ago and have been buying individual corporate bonds and CDs. The tax loss from the fund will be used offset a gain in a rental home that I sold earlier this year. Going forward I will be adding CDs and bonds as rates rise. What do you guys think about Bullard saying fed funds rates may have to go to 7 percent? Would that mean CDs and A rated Bonds could go to 9 or 10 percent?

 

[all4j]

I sold all of our BND a couple of months ago and have been buying individual corporate bonds and CDs. The tax loss from the fund will be used offset a gain in a rental home that I sold earlier this year. Going forward I will be adding CDs and bonds as rates rise. What do you guys think about Bullard saying fed funds rates may have to go to 7 percent? Would that mean CDs and A rated Bonds could go to 9 or 10 percent?

I think many/most of Fed officials are out trying to help set market expectations. In Bullards case, I haven't really pored over what he said, but I took it that he was saying if you used current data in current environment & applied a rules based approach, we'd be closer to at least 5% or maybe as high as 7% instead of where we are today. I think he acknowledged that the environment would change as that was put into effect & thus would need to be looked at then in that light. His point being that Fed shouldn't think it has done all it could/should do (imho).

As for CDs & single A corporates...fairly easy to say 'sure, we'll see 9+%'. But that is out of context unless someone predicts inflation or states the duration of the cd/bond. At least for CDs, I think we haven't seen positive, real, after tax returns since before GFC. Someone may have data to disprove that & one day it'll change anyway.

I'd still suggest that there may be some for which it is appropriate to hold no bonds, individual bonds, or bond fund/etfs depending.

 

[COcheesehead]

I’ve made this point before and I think it should be repeated.
Bonds are not the instrument to buy as an inflation hedge.
They provide current and near term income while preserving capital - if invested in an individual instrument with a par value - not a fund.
If you buy a bond expecting it to outpace long term inflation, you might be disappointed.
If you buy expecting predictable cashflow without a loss of capital, you are then viewing bonds correctly.
Use other assets as an inflation hedge or over fund the ladder so that it throws off more than you need and inflation becomes less of a worry.

 

[mojavesue]

I’ve made this point before and I think it should be repeated.
Bonds are not the instrument to buy as an inflation hedge.
They provide current and near term income while preserving capital - if invested in an individual instrument with a par value - not a fund.
If you buy a bond expecting it to outpace long term inflation, you might be disappointed.
If you buy expecting predictable cashflow without a loss of capital, you are then viewing bonds correctly.
Use other assets as an inflation hedge or over fund the ladder so that it throws off more than you need and inflation becomes less of a worry.

Ok. I agree with this. I am not looking at them as an inflation hedge. Just the fixed income portion of our portfolio. We have other income producing assets to provide an inflation hedge. Thank you for the response.