long-term bond YTD return

[Spanky]

There were so many advices late last 2004 on to stay away bonds. esp. long-term because of the anticipated interest rate hike. I guess they are wrong so far. Long-term bonds return about 3.8% so far.

Spanky

 

[John Galt]

I am pretty heavy into long term bonds (some junk).
Averaging 7% right now, and keeping my fingers crossed.

JG

 

[haha]

There were so many advices late last 2004 on to stay away bonds. esp. long-term because of the anticipated interest rate hike. I guess they are wrong so far. Long-term bonds return about 3.8% so far.

Spanky

You right Spanky. Go team goooo!!!

Mikey

 

[ak4195]

Yep,strange how everybody will soon be a bond bull.I expec t volatility,but keep in mind the long end of the curve is pure demand,supply is limited as of 2002.Inflation talk(in the hedonic deflator world) should take an about face,as everybody jumps on the long end with enthusiasm.I suspect those (hedge funds and such)heavily short the short end may have to cover a bit,thus stabilizing short term rates.Which have been on a steady march for months.Its a shame that the Fed chairman feels like he has to play to the market verbally to achieve his needs,rather than standing on policy.One more year or so and he will be gone--ak

 

[John Galt]

Re. "one more year or so and he will be gone". Be careful what you wish for.

JG

 

[brewer12345]

I think the bond market went nuts on Friday. I just don't see the Fed pausing until were are north of 3%, and it is hard to believe that we will have a flat/inverted curve, at least not for long. A lot of cash is leaving corporate balance sheets to do acquisitions and unit labor costs are rising. Inflation didn't suddenly go away, guys. Having said that, if I see 10 year rates got to 3.5% or less again, I will not lose the chance to short the bond market big time.

 

[Roger_R]

I'm thinking that forecasters were wrong enough with this one last year that their not saying much these days. However, I'm with Brewer. The yields on short term compared to longer term bonds continue to get closer and without a big hitch the fed are predicted to have 4 to 6 more quarter point hikes in the next several months by all that are bold enough to predict. Along the way I start to see some new drivers for longer term bond rates.

 

[John Galt]

I am in a bit of a quandry on this issue. As was pointed out, the spread between what you can get short term
and what you can get way out (where I mostly reside)
is narrowing. If I get a big slide in my NAV, I will be stuck where I am. I can live with that but wouldn't
like it much. OTOH, if I move some money into lower rungs on my ER ladder, I take a lower yield but may
preserve some NAV, or maybe I'd put some of it back into CDs and just see where rates go. The other thing
is that I went a bit strong on my "forever" money.
It kind of locks it away but locks up a rate I can stand.
But, it also leaves me short if I have a need for a major
expenditure. OTOH, as long as the CC companies
continue to offer free money (-0- % APY), I guess it doesn't matter

JG

 

[brewer12345]

JG, how about doing some hedging? Buy some puts on bond ETFs. If you buy them out of the money, they won't be that pricy, and you get some downside protection.

 

[azanon]

There were so many advices late last 2004 on to stay away bonds. esp. long-term because of the anticipated interest rate hike. I guess they are wrong so far. Long-term bonds return about 3.8% so far.

You say that as if to imply 3.8% is supposed to be good.  Give the utility fund i'm using a try, if you want a lot better than that.  Ticker BULIX. Sector fund with active management for only 0.69% expense ratio!

I consider 3.8% very unacceptible.  That's barely matching inflation.

 

[John Galt]

Good advice Brewer! I will consider that option.

JG

 

[brewer12345]

You say that as if to imply 3.8% is supposed to be good.  Give the utility fund i'm using a try, if you want a lot better than that.  Ticker BULIX.  Sector fund with active management for only 0.69% expense ratio!

I consider 3.8% very unacceptible.  That's barely matching inflation.

Umm, I think that he was saying 3.8% so far in 2005, which is not too shabby.

 

[charlie]

Hey JG,

I recently bought a bond on the secondary market
that pays 2.38% + CPI. I had to pay a little over
par (102). The bond pays interest monthly and
matures in 2013. At the current 3.26% inflation,
the yield is 5.64% ..... not as good as the 7%
you like, but not bad for an inflation hedge. Don't
forget that puts on Bond ETFs lower your effective
yield just like paying above par.

Sometimes you can find nuggets of gold by mining
Vanguard's Bond Desk data base.

Cheers,

Charlie

 

[Dawg52]

How about bond fund? Any recommendations here for the long haul?

 

[ak4195]

Re: brewer

I considered posting this last night in response to shorting the bond market,but declined.Now i feel that i must.MANY,MANY traders and institutions have been CRUSHED or bruised at best calling a top in the bond market.Morgan Stanley is the largest that i know of.If you have no idea what is driving this market then i believe its irresponsible to suggest that some should short the market.My work points to much lower yields on the long end are possible.3.87%-3.66 are not out of the question.

 

[azanon]

Umm, I think that he was saying 3.8% so far in 2005, which is not too shabby.

Oh.

I wouldn't go putting the conventional wisdom down just yet.... i'm sure there's an explanation.

I didnt have a great January in stocks i'll admit, but things seem to be improving quite a bit since 1/24/05.

 

[haha]

Re: brewer

My work points to much lower yields on the long end are possible.3.87%-3.66 are not out of the question.

Go short! Go long! Buy puts! So interesting to me that people here who usually declare  themselves to be dyed in the wool random walkers have suddenly decided to make calls on the very markets which are most likely to be efficient-the US treasury and high quality corporate bond markets.

It is certainly accurate to say that we are in a period of very low long term interest rates, and particularly real long term rates. (Relative to most of US history, and especially post WW2 history.)

What does that say about the future, long term or intermediate? Does anybody know of research which points strongly to interest rates being mean-reverting? If so, maybe we have a meaningful starting point at least as regards long term probablities. But if bond prices or interest rates are a random walk, then I can't see any basis at all on which to make forecasts. Most of what I have read suggest that they are a random walk, but I am not very well educated in this area.

I know as a matter of course that I personally could not buy long term bonds at these levels; but I don't rally have a rational justification for that. Other than stuff happens, and at long term rates below 5%, most of what happens is likely to be bad for the bondholder.

Mikey

 

[brewer12345]

Re: brewer

I considered posting this last night in response to shorting the bond market,but declined.Now i feel that i must.MANY,MANY traders and institutions have been CRUSHED or bruised at best calling a top in the bond market.Morgan Stanley is the largest that i know of.If you have no idea what is driving this market then i believe its irresponsible to suggest that some should short the market.My work points to much lower yields on the long end are possible.3.87%-3.66 are not out of the question.

Hey, I wasn't suggesting that anyone do anything. I mentioned what I may do, with no advise intended. I made a nice bit of change in 2003 by shorting the bond market, but I didn't risk anwhere near enough that I would be hurt if my bet went the wrong way.

As for the efficiency of the IG corporate and treasury markets, well, let's just say that I think that there is plenty of alpha to be pcked up by a sharp investor in the bond markets. Naturally, you may disagree.

 

[brewer12345]

Re: brewer

Go short! Go long! Buy puts! So interesting to me that people here who usually declare  themselves to be dyed in the wool random walkers have suddenly decided to make calls on the very markets which are most likely to be efficient-the US treasury and high quality corporate bond markets.

It is certainly accurate to say that we are in a period of very low long term interest rates, and particularly real long term rates. (Relative to most of US history, and especially post WW2 history.)

What does that say about the future, long term or intermediate? Does anybody know of research which points strongly to interest rates being mean-reverting? If so, maybe we have a meaningful starting point at least as regards long term probablities. But if bond prices or interest rates are a random walk, then I can't see any basis at all on which to make forecasts. Most of what I have read suggest that they are a random walk, but I am not very well educated in this area.

I know as a mater of course that I personally could not buy long term bonds at these levels; but I don't rally have a rational justification for that. Other than stuff happens, and at long term rates below 5%, most of what happens is likely to be bad for the bondholder.

Mikey

Not sure where I exactly professed to be a random walker (I'm not). I don't find the arguments behind the CAPM to be sufficiently convincing, at least for anything but the most liquid, most watched markets. As such, I am an active manager and stock picker in asset classes where I feel I have an edge.

If you see me advocating mostly index portfolios for others, it is because I am fully aware that my choices are often not for the faint of heart and are made based on many years of specialized training and experience which others may not have.

 

[cute fuzzy bunny]

Last thing I saw from Bill Gross said that he didnt think we slipped the hammering bonds were going to take, but that it was just deferred.

I'm sticking with the short to short-intermediates.

Right now frickin CD's will give you a better yield in the 5 year range with no capital volatility...

 

[Jarhead*]

Re: brewer

"

I know as a mater of course that I personally could not buy long term bonds at these levels; but I don't rally have a rational justification for that. Other than stuff happens, and at long term rates below 5%, most of what happens is likely to be bad for the bondholder.

Mikey

Mikey: Easy to say good post, if it's a point of view that I totally agree with
Of course, in the way of a disclaimer, I'm one of the old pharts on this board.
The current dislocation re: rates, inflation, etc. is the exact opposite of what we had 1966-1982, but I am a damn sight older.
In my opinion, for what it's worth, (not much, I'm sure, especially with the younger posters.) is to have patience, and allow the market place to adjust rates.
Very easy in this environment to stretch for an extra point or so, and end of having your head handed to you.
Losing principal is no big problem when you are working, but a real up-hill battle in full retirement.
I plan on staying short on my fixed income part of my funds, and hopefully keep principal intact, until the situation plays itself out.
"Stuff happens" (using your quote).
Jarhead

 

[Jarhead*]

Re: brewer

"

I know as a mater of course that I personally could not buy long term bonds at these levels; but I don't rally have a rational justification for that. Other than stuff happens, and at long term rates below 5%, most of what happens is likely to be bad for the bondholder.

Mikey

Mikey: Easy to say good post, if it's a point of view that I totally agree with
Of course, in the way of a disclaimer, I'm one of the old pharts on this board.
The current dislocation re: rates, inflation, etc. is the exact opposite of what we had 1966-1982, but I am a damn sight older.
In my opinion, for what it's worth, (not much, I'm sure, especially with the younger posters.) is to have patience, and allow the market place to adjust rates.
Very easy in this environment to stretch for an extra point or so, and end of having your head handed to you.
Losing principal is no big problem when you are working, but a real up-hill battle in full retirement.
I plan on staying short on my fixed income part of my funds, and hopefully keep principal intact, until the situation plays itself out.
"Stuff happens" (using your quote).
Jarhead

 

[haha]

Re: brewer

If you see me advocating mostly index portfolios for others, it is because I am fully aware that my choices are often not for the faint of heart and are made based on many years of specialized training and experience which others may not have.

Well, it is true that superior investors can get away with things that ordinary mortals can't. To help me more confidently assign you to the superior class, will you tell me what your net invested assets amount to?

Mikey

 

[brewer12345]

Re: brewer

Well, it is true that superior investors can get away with things that ordinary mortals can't. To help me more confidently assign you to the superior class, will you tell me what your net invested assets amount to?

Mikey

It makes not a whole lot of difference. After all, if I started with millions and ended up with a million bucks, you wouldn't consider me "superior" would you? Yet if I told you I was sitting on $1MM with no context, you might be tempted to conclude that I was doing OK.

 

[Bob_Smith]

The current dislocation re: rates, inflation, etc. is the exact opposite of what we had 1966-1982, but I am a damn sight older. In my opinion, for what it's worth, (not much, I'm sure, especially with the younger posters.) is to have patience, and allow the market place to adjust rates.

This strikes me as solid advice from a wise man. As one who was not a bond investor in the '66-'82 period, I can only imagine what it must been like. What follows are real bond returns during that period, and a few others.

PERIOD​

BOND REAL RETURNS​

1946-1965​

-1.2%​

1966-1981​

-4.2%​

1982-2001​

+8.5%​

1926-2001​

+2.2%​