Lsbcal
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I have asked myself what mix of intermediate term bonds (IT) versus short term bonds (ST) to hold? Many here hold intermediate term investment grade (like Total Bond market) and since the early 1980's that has been a good position. But in the 1950's through the 1970's, ST bonds actually did somewhat better then IT.
For some perspective, I used the Simba data to calculate 5 year rolling returns for the different bond classes available. Treasury returns were the only data type available before 1976. I plotted the difference between IT and ST returns using these 5 year rolling return values.
You can see for Treasuries, the ST bonds beat IT more often then not when there was an uptrend in rates (1950-1980). No mystery there. I believe this would also hold true for investment grade bonds i.e. short term investment grade bonds beat or could be a good complement to intermediate term investment grade bonds in a rising rate period.
The chart also compares returns for intermediate term investment grade (IT IG) versus short term investment grade (ST IG) bonds after 1976. In general the trend on investment grade (IT - ST) is similar to Treasuries but more volatile.
Here is the rate picture for 5 year constant maturity bonds. Viewed here as a proxy for the intermediate Treasury bonds. As we know, the rates are very low now and lower then the 1953 start of this chart. Most of us have invested during the declining rate part of this picture.
I have recently increased the ratio of ST IG to IT IG bonds in our portfolio. That goes along with lightening up on equities. Swedroe was fond of saying that ST IG was one asset class where the risk has been rewarded. I know that predicting rates into the future is not productive, but it is a fact that rates are very low right now. Over the past 5 years intermediates have definitely beaten short term but then rates have actually declined over that period.
Your thoughts?
For some perspective, I used the Simba data to calculate 5 year rolling returns for the different bond classes available. Treasury returns were the only data type available before 1976. I plotted the difference between IT and ST returns using these 5 year rolling return values.
You can see for Treasuries, the ST bonds beat IT more often then not when there was an uptrend in rates (1950-1980). No mystery there. I believe this would also hold true for investment grade bonds i.e. short term investment grade bonds beat or could be a good complement to intermediate term investment grade bonds in a rising rate period.
The chart also compares returns for intermediate term investment grade (IT IG) versus short term investment grade (ST IG) bonds after 1976. In general the trend on investment grade (IT - ST) is similar to Treasuries but more volatile.
Here is the rate picture for 5 year constant maturity bonds. Viewed here as a proxy for the intermediate Treasury bonds. As we know, the rates are very low now and lower then the 1953 start of this chart. Most of us have invested during the declining rate part of this picture.
I have recently increased the ratio of ST IG to IT IG bonds in our portfolio. That goes along with lightening up on equities. Swedroe was fond of saying that ST IG was one asset class where the risk has been rewarded. I know that predicting rates into the future is not productive, but it is a fact that rates are very low right now. Over the past 5 years intermediates have definitely beaten short term but then rates have actually declined over that period.
Your thoughts?
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