Why are my bonds down?

[copyright1997reloaded]

The Fed will need to buy corporate bonds to stabilize the market. Right now there are not enough bids to support the fund selling. This is causing spreads to widen and corporations cannot get credit at lower rates to fund near term expenses. Bond managers are dealing with outflows from funds well beyond demand. Many former members of the Federal Reserve are recommending that the Fed ask Congress to grant them permission to buy corporate bonds to stabilize the market. If rate spreads continue to widen, we will see irreparable damage to the equity and financial markets. The ECB already has this authorization.

Posted on another thread, but here you go, Fed is doing that as of this morning (and note the Unlimited aspect): https://www.federalreserve.gov/newsevents/pressreleases/monetary20200323b.htm

 

[Freedom56]

Posted on another thread, but here you go, Fed is doing that as of this morning (and note the Unlimited aspect): https://www.federalreserve.gov/newsevents/pressreleases/monetary20200323b.htm

Bonds are not designed to be day traded like equities. The market is not liquid enough Wall Street issues bonds on behalf of a company and most of it goes into a portfolio and are held to maturity. However with bond ETFs and funds they buy based on inflows into low liquid market pushing bids up and when they get outflows, the bids go down. When there is mass liquidation, yields on investment grade bonds vs treasuries tend to widen rapidly. This causes investors to re-think why hold equities when you can get better returns with bonds and causes equities to plunge which then causes more bond funds to be liquidated to raise cash. Many people are drawing money out of their accounts now and want to hold cash. This is why the Fed has been adding liquidity to the banking system. The Fed has the power to print as much money as they want. This was actually a good move by the Fed to stablize the market and add support to bonds. If we had investment grade bonds yielding 8-9%, the S&P would trend down to about 800 or lower. Common share dividends are not safe for many companies now.

 

[socca]

FWIW, I took another peek at the Vanguard muni bond yield curve yesterday afternoon (Sunday). I didn't expect much change - it was only two days later. Wrong! Here it is:

• VG Muni Money Market: 2.10%
• VG Short-Term Tax-Exempt: 1.17%
• VG Limited-Term Tax-Exempt: 1.21%
• VG Intermediate-Term Tax-Exempt: 1.36%
• VG Long-Term Tax-Exempt: 1.71%
• VG High-Yield Tax-Exempt: 2.16%

Now the VG Muni Money Market fund is yielding almost as much as the high-yield fund, which is crazy. It will be interesting to see if Federal Reserve emergency intervention #3 effective today (Monday) will help move things in the right direction. When VG Muni Money Market yields substantially less than Short-Term Tax-Exempt I'll consider things more (or less) back to normal.

 

[Truckinalong]

Just sold all my VG High Yield Muni at a big loss to lock in a carryforward loss for 8 years. Time will tell if it was the right call but I suspect I wil be able to buy even cheaper in a month or so.

First time in a long time I have engaged in timing like this. Wish I had done it a few weeks back when it was at an 8% gain!

 

[Markola]

My Vanguard Total Bond and Total International Bond funds are up for the year....juuuuuuuust a hair. Let the flight to safety begin!

 

[Lsbcal]

I scratch my head right now as to why others would hold even intermediate Treasury bonds. The rates are so low why take that risk? There are scenarios where rates are pushed up. I personally think it is wise to go with total safety now if you own even 50% stocks.

For instance, intermediate Treasury VFIUX has a yield of 1.06%. Unless you think the floor is lower then 0% then there seems to be very little gain over just a Treasury MM fund. I have a ton in Treasury MM fund right now (VUSXX) which pays 1.19% currently but I expect that to trend towards zero.

Can someone tell me why I should prefer intermediate Treasuries over Treasury MM?

 

[audreyh1]

Is the risk you are concerned about future interest rate risk?

 

[Lsbcal]

Is the risk you are concerned about future interest rate risk?

Yes.

I know it can go up slowly and that would mitigate that risk. But I imagine there are scenarios where the rate of rise cannot be so controlled. And for what, a 1% extra return. I can take the risk on the equity side instead (yikes, did I just say that?).

 

[audreyh1]

I just think we are a ways away from interest rates going up again.

The treasury only MM funds I see - the 7-day yields have already dropped considerably.

 

[Fermion]

I think we are a ways away from interest rates going up

However...I did not think the market could fall quite this much this fast.

I thought it was going to fall, but I thought it would take until April and maybe fall to 2800 on S&P500

It is making it very hard to predict anything. If faith becomes lost in the dollar, all bets are off on what might happen.

 

[socca]

Vanguard muni bond yield curve for 5 pm ET Monday:

• VG Muni Money Market: 3.37%
• VG Short-Term Tax-Exempt: 1.24%
• VG Limited-Term Tax-Exempt: 1.28%
• VG Intermediate-Term Tax-Exempt: 1.44%
• VG Long-Term Tax-Exempt: 1.82%
• VG High-Yield Tax-Exempt: 2.29%

Even crazier. An article from last week providing some background on this phenomenon can be found here.

 

[Lsbcal]

I just think we are a ways away from interest rates going up again.

The treasury only MM funds I see - the 7-day yields have already dropped considerably.

Yes they will probably be near zero soon. These are abnormal times so I will give up a bit of yield for safety and security.

 

[socca]

Vanguard muni bond yield curve for 5 pm ET Tuesday:

• VG Muni Money Market: 3.77%
• VG Short-Term Tax-Exempt: 1.49%
• VG Limited-Term Tax-Exempt: 1.51%
• VG Intermediate-Term Tax-Exempt: 1.67%
• VG Long-Term Tax-Exempt: 2.07%
• VG High-Yield Tax-Exempt: 2.56%

The last time that VG Municipal Money Market Fund (VMSXX) spiked like this was the 2008/2009 financial crisis. VMSXX didn't break the buck back then - are the risks really higher this time around? It seems that some folks are so terrified that they view even VMSXX as too risky. OK - whatever.

 

[Which Roger]

I just think we are a ways away from interest rates going up again.

The treasury only MM funds I see - the 7-day yields have already dropped considerably.

And a few years ago, when bond yields were historically low, many were certain that they had nowhere to go but up and acted accordingly. More evidence in favor of the argument that the market is smarter than we are.

 

[socca]

Vanguard muni bond yield curve for 5 pm ET Wednesday:

• VG Muni Money Market: 4.05%
• VG Short-Term Tax-Exempt: 1.55%
• VG Limited-Term Tax-Exempt: 1.56%
• VG Intermediate-Term Tax-Exempt: 1.73%
• VG Long-Term Tax-Exempt: 2.12%
• VG High-Yield Tax-Exempt: 2.62%

How high will VMSXX yield go?

 

[jazz4cash]

How high will VMSXX go?

I don't know but I'm more interested to know how long the rates will be elevated. It's not like you can lock into theses rates for any meaningful period of time, right?

 

[Lsbcal]

I just think we are a ways away from interest rates going up again.

The treasury only MM funds I see - the 7-day yields have already dropped considerably.

I'm coming around to thinking maybe I should hold a combination of short term Treasury and intermediate term Treasury. Or maybe all short term Treasury.

VUSXX Treasury MM 1.01% (rapidly declining yield)
VFIRX Short Term Treasury 0.92%
VFIUX Intermediate Treasury 0.95%

Confusing times.

 

[audreyh1]

The bond fund payouts will drop too if equivalent treasuries are already lower - just more slowly. They always do.

Not much point in chasing yield right now. Maintaining the desired allocation is good.

 

[Lsbcal]

The bond fund payouts will drop too if equivalent treasuries are already lower - just more slowly. They always do.

Not much point in chasing yield right now. Maintaining the desired allocation is good.

Yes but one gets some cap gains kicker in the process. Here is the table for the Treasuries that those 3 funds key on:

So I am thinking of going with short term Treasury because if for some reasons rates go up fast, I won't suffer as much. My planning all along was to go with a combination of ST and Intermediate Treasuries in stock market sell offs. This just happened so fast and the worse thing is rates are very very low here.

 

[Freedom56]

I have been buying up investment grade corporate bonds/notes over the past week and a half. The yields have been nothing short of incredible. The panic liquidation by funds allowed me to pick up quality investment grade short term notes well below par at YTM as much as 9.8% for 5 year notes and 6% for 1 year notes. Four weeks ago those same corporate notes were yielding 2.6% and 1.9%. Bid and ask spread on bonds were as much as 15-20%. I also traded investment grade preferred stocks (bought and sold) that were under massive liquidation that I haven't seen since 2008/9. Some fools were even selling their brokered FDIC insured CDs below par. These trades plus the bond purchases put me in the plus column for 2020 and added to my income stream going forward. What I have lost in this sell-off was most of my bond premiums which are coming back as bond funds are all programmed to look for yield.

I'm holding 20% cash now and ready any more mass liquidations. I believe that muni bonds will be targets going forward again. States and cities are losing a lot of their revenue stream from all the business closures. I avoided muni bonds as their yields were far too low relative to other bond investments and not worth risk of holding them. That may change in the future.

One of reasons why bond fund yields will be down going forward is that they liquidated many of their holdings at a loss and are now buying them back at much higher prices. I see the same pattern repeat over and over again.

 

[Truckinalong]

Where does one buy these invstment grade corporate bond deals direct?

 

[audreyh1]

Where does one buy these invstment grade corporate bond deals direct?

I’m sure your brokerage bond desk can help you out.

 

[COcheesehead]

I have been buying up investment grade corporate bonds/notes over the past week and a half. The yields have been nothing short of incredible. The panic liquidation by funds allowed me to pick up quality investment grade short term notes well below par at YTM as much as 9.8% for 5 year notes and 6% for 1 year notes. Four weeks ago those same corporate notes were yielding 2.6% and 1.9%. Bid and ask spread on bonds were as much as 15-20%. I also traded investment grade preferred stocks (bought and sold) that were under massive liquidation that I haven't seen since 2008/9. Some fools were even selling their brokered FDIC insured CDs below par. These trades plus the bond purchases put me in the plus column for 2020 and added to my income stream going forward. What I have lost in this sell-off was most of my bond premiums which are coming back as bond funds are all programmed to look for yield.

I'm holding 20% cash now and ready any more mass liquidations. I believe that muni bonds will be targets going forward again. States and cities are losing a lot of their revenue stream from all the business closures. I avoided muni bonds as their yields were far too low relative to other bond investments and not worth risk of holding them. That may change in the future.

One of reasons why bond fund yields will be down going forward is that they liquidated many of their holdings at a loss and are now buying them back at much higher prices. I see the same pattern repeat over and over again.

The muni bond train has left the station. Over the last week there was a big spike in yields. Mostly on the short end, but you could pick up AA - AAA bonds well over 4%. They are all gone now as soon as muni bonds were added into the bailout.

 

[Lsbcal]

I have been buying up investment grade corporate bonds/notes over the past week and a half. The yields have been nothing short of incredible. The panic liquidation by funds allowed me to pick up quality investment grade short term notes well below par at YTM as much as 9.8% for 5 year notes and 6% for 1 year notes. Four weeks ago those same corporate notes were yielding 2.6% and 1.9%. Bid and ask spread on bonds were as much as 15-20%.
...

Are you referring to BBB rated bonds? Any examples of the kind of corporate quality you are talking about?

I have only ever bought Treasuries in individual bonds and have no way of rating these except by going by the rating agency ratings. Many funds do their own ratings.

 

[COcheesehead]

Hers is a yield table as of today from Fidelity. All the good, high yield, high quality bonds are gone. The spike was late last week and early this week. Anything with yield now is close to junk rated.

https://fixedincome.fidelity.com/ftgw/fi/FILanding?bar=p