Fixed Income Investing II

[mrfeh]

+1

Selling low, locking in losses when bond funds will be returning healthy dividends for years to come?

Absolutely not.

 

[Healthy Lifestyle]

Selling low, locking in losses when bond funds will be returning healthy dividends for years to come?

Absolutely not.

This all so confusing when considering which way to go.

 

[aja8888]

This all so confusing when considering which way to go.

Especially if one failed to dump their bond funds when interest rates started to climb higher.

I know that's market timing but it's also understanding the characteristics of bonds and bond funds.

Riding the interest rate decline down to zero (blaming you, FED) was fun for bond and bond fund holders, but now, there won't be the same kind of fun as rates rise.

 

[pb4uski]

Selling low, locking in losses when bond funds will be returning healthy dividends for years to come?

Absolutely not.

Nope.

Losses are sunk cost at this point. What happens from here is only what matters.

If the bond ETFs are in taxable accounts then he can sell, take the loss to either offset gains or ordinary income for up to $3k annually and reinvest the proceeds in an individual bond portfolio of similar maturity and credit quality of the bond ETF and come out ahead.

I've been buying A to AA+ rated 4-5 year corporate bonds at 5.60-5.85% YTM.

 

[target2019]

This all so confusing when considering which way to go.

One thing to be careful about is free advice from anonymous strangers.

 

[imbatman]

Yup, I agree with @pb4uski, if in a non-taxable account, the main question is if you want to pay the expense ratio as opposed to shop on your own. Depends on your economic view and goals for your funds, but I do agree that now isn't the best time to abandon bonds in general as they are hitting repeated lows after a year of brutal thrashing. If I can get 6-7% returns for the next 5-10 years in bonds (take a look at AAA taxable muni new issues) with much less risk than typical stock uncertainty, sounds pretty darned good to me.

If taxable, take that nice loss and buy something equatable (either another fund/ etf or your own bonds).....the losses are done so just have to look forward.

 

[jldavid47]

Selling low, locking in losses when bond funds will be returning healthy dividends for years to come?

Absolutely not.

Good luck with that strategy.

 

[COcheesehead]

If you had any high(er) coupon, non callables with some duration, you are probably making money today. Does the market think this is it? We’ll see.

 

[Montecfo]

You never know except in hindsight but the market appears to be telling us it sees the top in yields.

Hopefully folks have been extending duration for quite some time now.

 

[COcheesehead]

You never know except in hindsight but the market appears to be telling us it sees the top in yields.

Hopefully folks have been extending duration for quite some time now.

I don’t think the door is completely closed, but from what I have seen in longer duration bonds, they are getting more expensive by the day and if you own them, you are seeing capital gains by the day.

 

[jldavid47]

You never know except in hindsight but the market appears to be telling us it sees the top in yields.

Hopefully folks have been extending duration for quite some time now.

Right now it looks like a garden variety correction in an ongoing bond bear market. Just last month the 30-year yield dropped 37 basis points in just 4 days before turning around. The past 2 days have seen a drop of 29 basis points. The velocity of the upmove the past 2 days looks like massive short covering by professionals. (Yes, professionals short bonds and bond futures). We'll know better in 8-10 days. I have no idea whether yields have peaked or not. All I know is the current intermediate and long-trend in rates is still up. If the 30 year treasury bond yield breaks 4.68%, I'll have to reconsider.

 

[Montecfo]

Right now it looks like a garden variety correction in an ongoing bond bear market. Just last month the 30-year yield dropped 37 basis points in just 4 days before turning around. The past 2 days have seen a drop of 29 basis points. The velocity of the upmove the past 2 days looks like massive short covering by professionals. (Yes, professionals short bonds and bond futures). We'll know better in 8-10 days. I have no idea whether yields have peaked or not. All I know is the current intermediate and long-trend in rates is still up. If the 30 year treasury bond yield breaks 4.68%, I'll have to reconsider.

As I said, we never know except in hindsight.

 

[COcheesehead]

Wild stuff yesterday and perhaps today too. I own some long duration, high coupon, non callable corporates RBC, HSBC, Wells Fargo and they are all up selling well over par. They had stock market like returns yesterday 3%-4% single day returns. I even had some long duration munis up 1%-2%.

 

[copyright1997reloaded]

Wild stuff yesterday and perhaps today too. I own some long duration, high coupon, non callable corporates RBC, HSBC, Wells Fargo and they are all up selling well over par. They had stock market like returns yesterday 3%-4% single day returns. I even had some long duration munis up 1%-2%.

"well over par" is only true if they are recent purchases. For example, here's the RBC 5.2% of 2033 that many here bought as a new issue a while back (after rates had run up). Yes, it has improved over the last few days, but still at 90.6 bid. I'm only using this as an example, the "peak" will only be known in the rear view mirror, and we best be looking forward down the road for the next hill.

 

[COcheesehead]

"well over par" is only true if they are recent purchases. For example, here's the RBC 5.2% of 2033 that many here bought as a new issue a while back (after rates had run up). Yes, it has improved over the last few days, but still at 90.6 bid. I'm only using this as an example, the "peak" will only be known in the rear view mirror, and we best be looking forward down the road for the next hill.

I started buying longer duration, non callables more recently. High coupons, 7%, 7.2%, 7.5%…I wanted reliable income for years and those yields at that coupon make my plan work even if rates continue to rise. All those buys are up significantly.
Those lower coupon bonds discussed on here a year ago or so are all still under water and will be until closer to maturity.

 

[11522914]

You never know except in hindsight but the market appears to be telling us it sees the top in yields.

Hopefully folks have been extending duration for quite some time now.

The market thought the top was in June 22, then top in October 22, top in February 23 and now top in October 23.

Eventually it will be right. If the CPI & PCE come in at or below expectations in the next 3 months I may start believing that was the top. Definitely not until then.

 

[imbatman]

yup all prices up/ yields down in the last 3-days, everywhere I been playing.....whether this is temp or not....who knows

 

[Montecfo]

The market thought the top was in June 22, then top in October 22, top in February 23 and now top in October 23.



Eventually it will be right. If the CPI & PCE come in at or below expectations in the next 3 months I may start believing that was the top. Definitely not until then.

Topping is a process not an event. Another way to look at is is we have had opportunities to lock in great yields for a year.

Outside of treasuries very recently, rates have not moved much in the past year.

The non core PCE (Fed's preferred measure) has been at 2.4% during Q3.

As I have said, the top is clear only in retrospect. By the time you are certain only lower rates will be available.

And that may be fine for your objectives. Not saying otherwise. These are signposts. Some may value them more or differently than others. Some may ignore.

 

[Echard]

If you use Fidelity, a combination of their fixed income analysis report and the portfolio dividend view would give you all the visibility you’d need.

Tried this, but there are so many issues. I can't get the bond fund ETF's to add, even though it says it supports them. It doesn't take baby bonds. It takes forever to calculate. It doesn't show the ladder by year. It's really not useful for me.

 

[COcheesehead]

Tried this, but there are so many issues. I can't get the bond fund ETF's to add, even though it says it supports them. It doesn't take baby bonds. It takes forever to calculate. It doesn't show the ladder by year. It's really not useful for me.

You need to use the Fixed income analysis for individual issues then add in the “dividend view” from your portfolio summary page (it’s a check box at the top of the page) which shows income from ETFs and funds. I use the two to get a complete picture. I find it very useful.
The fixed income analysis shows ladders by year so I am not sure what you are experiencing.

 

[Echard]

You need to use the Fixed income analysis for individual issues then add in the “dividend view” from your portfolio summary page (it’s a check box at the top of the page) which shows income from ETFs and funds. I use the two to get a complete picture. I find it very useful.
The fixed income analysis shows ladders by year so I am not sure what you are experiencing.

Thanks, I see that now. But I still have iBonds (US Govt), baby bonds and other securities that the tool can't handle. Also, since I have investments stretched across multiple brokerages it's just tough to use it. I'm on spreadsheets which works okay, but not great. I wish I had a nice third party spreadsheet tool that was sophisticated enough to handle TIPS, baby bonds, US Govt iBonds, etc.

On another topic, I'm rebalancing my ladder to extend duration more, and would like to trade out some CD's for taxable muni's, but I'm uncomfortable buying individual issues because of the challenge if I had to sell them later. Plus with no bid/ask spread, I don't like the guesswork of setting the buy price. There is only one taxable muni bond ETF, but it isn't a term fund, like the iShares iBonds. Any other angle I'm missing on taxable muni's?

 

[COcheesehead]

Thanks, I see that now. But I still have iBonds (US Govt), baby bonds and other securities that the tool can't handle. Also, since I have investments stretched across multiple brokerages it's just tough to use it. I'm on spreadsheets which works okay, but not great. I wish I had a nice third party spreadsheet tool that was sophisticated enough to handle TIPS, baby bonds, US Govt iBonds, etc.

On another topic, I'm rebalancing my ladder to extend duration more, and would like to trade out some CD's for taxable muni's, but I'm uncomfortable buying individual issues because of the challenge if I had to sell them later. Plus with no bid/ask spread, I don't like the guesswork of setting the buy price. There is only one taxable muni bond ETF, but it isn't a term fund, like the iShares iBonds. Any other angle I'm missing on taxable muni's?

The market is thin in taxable munis. I own a few, but bought them to hold to maturity. You can always ask Fidelity to bid them for you and just see what prices comes back. Then make a decision. If liquidity is important, Treasuries and corporate bonds trade all day long. If you buy in the secondary with an existing bid, there will likely also be a bid when it comes time to sell.

 

[COcheesehead]

Anybody thinking about treasuries right now?

 

[Echard]

I would like to have a roughly 50/50 bond allocation between govt bonds and corp bonds, and I'm heavy corporate since treasury rates were stuck in the 4's. When the 10 year went to 5 I wish I would have bought some to build up the ladder in years 7-10.

 

[COcheesehead]

Anything with a good coupon and duration is going to look pretty good today. Bond CEFs too.