European PP - short bonds

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D.J.
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European PP - short bonds

Post by D.J. » Wed Oct 14, 2020 12:30 pm

I'm having doubts again about the short-term bonds (again). In the past I've had C3M (0-6m gov bonds) but the losses were pretty bad, so I moved to plain cash.

Image

A fellow EUPP in a thread mentioned C13 which looks a bit better, kind of.

Image

Graphs from JustETF.

This still looks like worse than cash.

What are everyone's thoughts? Do you have plain cash? A short term bond ETF? Which? What are your thoughts on its returns?
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Hal
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Re: European PP - short bonds

Post by Hal » Wed Oct 14, 2020 5:36 pm

I would focus on return of capital, rather than return on capital. Is there a Treasury money market fund in Europe you could use?
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D.J.
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Re: European PP - short bonds

Post by D.J. » Thu Oct 15, 2020 2:07 am

EU money market ETF:

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JustETF

I don't think we should use a US treasury fund in EU because it's USD-based.
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Hal
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Re: European PP - short bonds

Post by Hal » Thu Oct 15, 2020 4:21 am

Hi DJ,

Guess I wasn't specific enough :)

Is there a money market fund in Europe that invests only in "European" Government Treasuries. If so, I would consider that.
From my reading, the Lyxor fund doesn't invest in just Euro Treasuries.

Have a look at the old article listed -> https://www.etf.com/sections/features/4 ... nopaging=1

Not an expert on Euro financial products as I live in Australia. However, old enough to remember bank failures in Australia in the early 90's, so I prefer Government Treasuries.
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Re: European PP - short bonds

Post by senecaaa » Thu Oct 15, 2020 10:01 am

I have implemented a German bond ladder, e.g. this bond is part of it: https://www.deutsche-finanzagentur.de/e ... 001104743/

Yes, I lose money there, as the price moves toward the par value, but as Hal said it is way safer than cash.
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Re: European PP - short bonds

Post by D.J. » Thu Oct 15, 2020 11:43 am

@Hal, isn't this C13 what you mean?
The FTSE MTS Eurozone Government Broad Investment Grade 1-3 Year index tracks eurozone’s largest and most widely traded outstanding sovereign debt securities.
So if I understand Hal's and senecaaa's comments, I'd be investing into this because cash go down with a bank (at least above 100k), while these bonds would be safer?

Is there a scenario where we can see these short-term bonds increasing in value?
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Hal
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Re: European PP - short bonds

Post by Hal » Thu Oct 15, 2020 1:25 pm

D.J. wrote:
Thu Oct 15, 2020 11:43 am
@Hal, isn't this C13 what you mean?
The shorter the duration the better, like the 0-1 year Gov't Bonds in the attachment.
The 1-3 years ETF's are still OK, but typically more volatile.

Senecaa's approach is the ultimate as the listed ETF's can have a fair slice of Italian Bonds.

Edit: As for Government guarantees ->https://en.wikipedia.org/wiki/Pyramid_Building_Society
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Re: European PP - short bonds

Post by Vil » Fri Oct 16, 2020 5:27 am

It seems that I will repeat myself again here, but based on my modest experience non-US PP are far from working decently. Just see the numbers/graphs (as you do) .. Italian, Spanish, .. bonds - no thanks. Gold relation to Euro inflation - pfew.. International diversification - pfew, you (possibly) get some more crumbs, so no need even to bother ...
EUR hedged US PP is another thing (and the one that I am following), there is even IBC5 (iShares USD TIPS UCITS ETF EUR Hedged) - if you feel in that mood .. :D
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Re: European PP - short bonds

Post by D.J. » Sat Oct 17, 2020 4:14 am

Hal wrote:
Thu Oct 15, 2020 1:25 pm
The shorter the duration the better, like the 0-1 year Gov't Bonds in the attachment.
The 1-3 years ETF's are still OK, but typically more volatile.

Senecaa's approach is the ultimate as the listed ETF's can have a fair slice of Italian Bonds.

Edit: As for Government guarantees ->https://en.wikipedia.org/wiki/Pyramid_Building_Society
I don't understand the comment about the Italian bonds. Even if they're poor, doesn't that reflect in the price? My long-term bond ETF (DBXG) has been working like gangbusters, even with large part Italian bonds in there.

So, if I understand correctly, with short-term bonds I'm mostly looking for safe-haven for cash? Even if it's worse on return than holding cash, it's safer than holding cash.
Vil wrote:
Fri Oct 16, 2020 5:27 am
It seems that I will repeat myself again here, but based on my modest experience non-US PP are far from working decently.
In general, I'm pretty happy with how EUPP is going, so I'm staying with the theory and just want to figure out the short-term bonds. I want stability with solid returns and I'm getting that. When I feel more adventorous I just put more into the Variable portfolio.
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Re: European PP - short bonds

Post by Hal » Sat Oct 17, 2020 5:54 am

D.J. wrote:
Sat Oct 17, 2020 4:14 am

I don't understand the comment about the Italian bonds. Even if they're poor, doesn't that reflect in the price? My long-term bond ETF (DBXG) has been working like gangbusters, even with large part Italian bonds in there.

So, if I understand correctly, with short-term bonds I'm mostly looking for safe-haven for cash? Even if it's worse on return than holding cash, it's safer than holding cash.
In a free market, you would be absolutely correct about Italian Bonds, however the ECB is purchasing them on a basis of supporting the financial system. This distorts their yield vs risk. That said, I would still hold a Bond ETF vs having it in the bank.

https://www.cnbc.com/2020/06/04/europea ... euros.html

And you are totally correct, you are looking for a safe haven for cash, even if the return is worse than the alternative.

DJ, I had my funds in a State Government owned bank which collapsed in the 1990's. It was only because the Federal Government purchased the bank, via their Commonwealth Bank, that my life savings were preserved. Believe me, you don't want to go through that!

https://en.wikipedia.org/wiki/State_Bank_of_Victoria

This is nothing new, look what happened in the 1890's here -> https://archive.org/details/coinsfinanc ... =australia

Any other forum members, feel free to comment as well.
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Re: European PP - short bonds

Post by Vil » Sat Oct 17, 2020 6:41 am

Hal wrote:
Sat Oct 17, 2020 5:54 am
That said, I would still hold a Bond ETF vs having it in the bank.
...
DJ, I had my funds in a State Government owned bank which collapsed in the 1990's. It was only because the Federal Government purchased the bank,
Have been through that, but in my case the bank (Corporate Commercial Bank in Bulgaria) got busted with over 2.5 billion EUR vanishing in the thin air (well, not exactly, but for many of the 'users' it was quite resembling). Bank did not get any support from the government (it was a private bank too). It was only the bank emergency fund that helped with its 100K EUR/capita recovery fund. Good, I was well diversified back then...
Hal wrote:
Sat Oct 17, 2020 5:54 am
And you are totally correct, you are looking for a safe haven for cash
Sorry, and I do not want to sound arrogant, but do I get it that you consider credit rating S&P/Fitch BBB with negative trend (in the case of Italy) a safe haven ? Recently Moody's increased the rating of Bulgaria (where I am settled at the moment) to Baa1, where Italy stays Baa3 (that's just a step away from sub-prime/non-investment grade...). Well, not my cup of tea, I would not even dare to think in any sort of investing in any of the South European countries (it might be my personal bias for not-trusting those countries).
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Re: European PP - short bonds

Post by Hal » Sat Oct 17, 2020 7:06 am

Vil wrote:
Sat Oct 17, 2020 6:41 am

Sorry, and I do not want to sound arrogant, but do I get it that you consider credit rating S&P/Fitch BBB with negative trend (in the case of Italy) a safe haven ? Recently Moody's increased the rating of Bulgaria (where I am settled at the moment) to Baa1, where Italy stays Baa3 (that's just a step away from sub-prime/non-investment grade...). Well, not my cup of tea, I would not even dare to think in any sort of investing in any of the South European countries (it might be my personal bias for not-trusting those countries).
Vil, no offence taken. If its a choice between having all the funds in one bank vs a Euro Bonds ETF, I consider it picking the "least worst" option. Having just a short term German Bond ETF would be preferable, if such a thing exists.

What would you suggest for DJ? I wouldn't want him/her to go through what we experienced with Banks ;)
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Re: European PP - short bonds

Post by Vil » Sat Oct 17, 2020 11:55 am

Hal wrote:
Sat Oct 17, 2020 7:06 am
What would you suggest for DJ?
Well, I do not want anyone to follow blindly anything I am doing. I was standing behind my personal opinion that EU-PP might not behave as well as US-PP, given the role of USD as world reserve currency, having the relations of Gold, the ability of US Fed to decide solely on printing more money against the not-that "important" role of EUR, the EUR-inflation agnostic nature of Gold and also the complex relations between ECB and national banks when it comes to money supply in the euro zone. I mean US-PP sounds for me more .. how to put it.., let's say more predictive and what's also important for me - I can understand it better. Bulgaria is in currency board with EUR, which makes the situation even more complex...
Having said all that, I have 2 different US-PP implementations (outside my VP) - they are kept in different brokers/banks and they're approximately 1:2 in asset allocation - USD based US-PP vs EUR-hedged US-PP. For the bonds part of the USD US-PP - I am using US7, and for the EUR-hedged - using XUTE. In general - am trying to diversify between brokers (prefer ones that are banks also) and ETF providers. But again - that's just me.
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Re: European PP - short bonds

Post by D.J. » Sun Oct 18, 2020 2:28 am

Thanks for the discussion, guys.
Hal wrote:
Sat Oct 17, 2020 5:54 am
And you are totally correct, you are looking for a safe haven for cash, even if the return is worse than the alternative.
If this is the only reason, then there are other ways to do it, besides potentially splitting it between multiple local banks. You can sign up to multiple alternative banks where you can have regular cash (N26 is a proper bank with the 100k guarantee, and Revolut has a banking license, plus they're in different jurisdictions).

There is also Interactive Brokers that has a guarantee of $250k for cash and $500k for the account.
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Re: European PP - short bonds

Post by Hal » Sun Oct 18, 2020 6:57 am

D.J. wrote:
Sun Oct 18, 2020 2:28 am
Thanks for the discussion, guys.
Hal wrote:
Sat Oct 17, 2020 5:54 am
And you are totally correct, you are looking for a safe haven for cash, even if the return is worse than the alternative.
If this is the only reason, then there are other ways to do it, besides potentially splitting it between multiple local banks. You can sign up to multiple alternative banks where you can have regular cash (N26 is a proper bank with the 100k guarantee, and Revolut has a banking license, plus they're in different jurisdictions).

There is also Interactive Brokers that has a guarantee of $250k for cash and $500k for the account.
Thats my only reason. So if you can trust the deposit guarantee, go for it.

Here in Australia, the guarantee is activated at the "discretion" of the Government and they have ZERO reserves with which to honour the guarantee. One other trap here; the guarantee can be activated "only if " the bank fails. If they bail-in your funds, the bank doesn't fail, hence there is no guarantee (nice trick :o ). Suggest you check your European regulations closely.

Hope all goes well and thanks to Vil and Senecaa for an interesting discussion.
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