Interesting discussion on future bond returns

VanWinkle

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I read an interesting thread on the future of bond returns based on the low fed interest rates. There have been several threads here on the same subject with many saying to stay clear of bonds altogether.

https://www.bogleheads.org/forum/viewtopic.php?f=10&t=320844&p=5386258

Interest rates are the best predictor of future returns, but those returns are
really unpredictable based on the past.
 
IIRC Vanguard has said in the past that the 10 year treasury is a reasonable indicator of future bond investment yields (before any credit risk adjustments).

At 12/31/2019 the 10-year treasury was yielding 1.92%. In their 2020 outlook the forcast for US treasury bond was ~1 1/2 to 2 1/2%.

Currently, the 10-year treasury is 0.61%.
 
My understanding is if 10-year treasury goes even lower than current 0.61% we will have good returns in bonds.

In such case we are likely to have even better returns in stocks though. What is reasonable value for S&P 500 PE is tightly coupled with 10-year treasury yields.
 
I just don’t worry about it. Bonds are there for ballast/safety, not return. Rebalancing deals with the ups and downs in rates. If short term CDs or treasuries offer a better rate I take advantage with some of our fixed income, but the bulk remains in bond funds.
 
I just don’t worry about it. Bonds are there for ballast/safety, not return. Rebalancing deals with the ups and downs in rates. If short term CDs or treasuries offer a better rate I take advantage with some of our fixed income, but the bulk remains in bond funds.

Exactly what we do.

We hold I Bonds, CDs and some short term bond funds, but >80% of our fixed income holdings is total bond.
 
In our bond portfolio, we're at a 50/50 total bond fund/mm fund to reduce the duration. Outside of that, I haven't made any specific changes. Now if someone has a brilliant strategy to increase rates while keeping my FI risk low and work to a minimum, I'm all ears!
 
What is your MM fund paying? Most are pretty pathetic. Online savings accounts are same risk and yield about 1% these days. Downside is that if your 50% of FI exceeds the FDIC limits that you might need to spread the MM money between numerous financial institutions... but with the right structuring a couple can have as much as $1 million insured at a single bank (250k in two different individual accounts and $500k in a joint account).

Married couples will have another option for maximizing their FDIC insurance coverage. You and your spouse each can open individual accounts at a single bank, resulting in each of you having up to $250,000 FDIC-insured. You can then also open a joint account and each have $250,000 insured in that account. Between those three accounts, you could have up to $1 million FDIC insured at one bank.
 
What is your MM fund paying?

Dismally - Fidelity SPAXX. I was considering switching to online savings accounts but thought it was too much of a hassle, and online savings accounts yields seem like they are continuing dropping.

No issues on the FDIC limit.
 
Yes, it is definitely a hassle... especially with IRAs... less so with taxable accounts.

While online savings yields have dropped recently, I suspect that they are stabiizing.

If you can pick up 1% and it only takes you an hour or two, that's $500 or $1,000 and hour!

Also, there are some bonus offers that are pretty attractive... many of us took advantage of a Capital One offer $500 for $50k deposit for 3 months... plus you got the regular interest rate on top of that... so basically, 1% over the regular rate for the 3 month term needed to qualify for the bonus.
 
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