The Less Pretty Bond Thread

Discussion of the Bond portion of the Permanent Portfolio

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boglerdude
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Re: The Bond Dream Room

Post by boglerdude » Sat Aug 22, 2020 4:21 am

Why should I be buying EDV yielding 1.3% when I could pay down my 2% mortgage?
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Re: The Bond Dream Room

Post by mathjak107 » Sat Aug 22, 2020 6:04 am

boglerdude wrote:
Sat Aug 22, 2020 4:21 am
Why should I be buying EDV yielding 1.3% when I could pay down my 2% mortgage?
potential capital gains ..

look at TLT . .. yelds are tiny ... gains ytd and the last year are huge. interest on a mortgage is also on a declining balance getting less and less .

in the last 6 months someone made more than 15 years interest on that mortgage in tlt even with very low yields
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Re: The Bond Dream Room

Post by Kbg » Sat Aug 22, 2020 9:22 am

mathjak107 wrote:
Sat Aug 22, 2020 6:04 am
boglerdude wrote:
Sat Aug 22, 2020 4:21 am
Why should I be buying EDV yielding 1.3% when I could pay down my 2% mortgage?
potential capital gains ..

look at TLT . .. yelds are tiny ... gains ytd and the last year are huge. interest on a mortgage is also on a declining balance getting less and less .

in the last 6 months someone made more than 15 years interest on that mortgage in tlt even with very low yields
This one is easy. If we assume nothing, pay down/off the mortgage. It’s a no brainer with a .7% comparative profit.

Every other possible option requires assuming something. Two more no brainers.

Interest rates go down, keep TLT and refinance if they really go down again.

Interest rates go up, too late your TLT position got hammered, and you have very cheap mortgage and likely negative yielding for the life of the loan.
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Re: The Bond Dream Room

Post by mathjak107 » Sat Aug 22, 2020 1:10 pm

the problem most have who are trying to decide whether to invest or pay off the mortgage or even pay cash or take a mortgage is they fail to realize they are borrowing money in effect to invest .

there is a big difference in what i want as a risk premium over using my own money vs leveraging with borrowed money .

it is not just business as usual where if i beat the mortgage interest i am a head .

if a risk free treasury is paying 2% as an example i would want at least a 3% risk premium for using borrowed money via the mortgauge .

add on the interest from the mortgage and i would want 6-7% .......

so , would i invest in anything but 100% equities today ? nope ..... not enough risk premium long term in balanced portfolio's for my taste .

kitces did a good job bringing this risk premium to light and emphasizing this is not just investing . this is borrowing money to invest



https://www.kitces.com/blog/why-keeping ... -the-risk/
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Re: The Bond Dream Room

Post by Kbg » Sat Aug 22, 2020 2:47 pm

If we assume nothing is the operative phrase here.

The math is the math. Bond debates are stupid. Without fail they always end up with assumptions being made.

There is one big difference. You chose to buy a long bond or an ETF. If you don't pay your mortgage you get kicked out of the house and they take your equity.

So I made an unstated assumption as well...you have a job or the ability to pay off your mortgage.

Personally, I don't think there really is a right or wrong bonds/investments vs. your mortgage answer. There is some straight forward math that is easy enough to do and everyone should do. They should thoroughly understand the pros and cons of both and then make the choice that best fits their personal situation and psyche.
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Re: The Bond Dream Room

Post by Lonestar » Tue Sep 01, 2020 6:24 pm

Pardon me for kinda jumping off subject here, but what are some of the possible reasons that could cause short to intermediate term treasury rates to increase in the near term?

With the additional debt the government has amassed during the Covid pandemic, added to the already staggering national debt, it seems it would almost be impossible for them to service their debt obligation under higher rates.

Now I realize it's the Fed that influences the rates, not the U.S. government, but still, you know there has got to be some "collaboration".
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Re: The Bond Dream Room

Post by Smith1776 » Tue Sep 01, 2020 8:32 pm

It wouldn't surprise me if LTTs ended up being the best performing asset over the next 5 years.

I can easily see a scenario where a deflationary spiral causes LTTs to experience a modest nominal gain and impressive real gain as the other major asset classes collapse.

Even if LTTs have little upside left they can still be the winner if everything else in the portfolio crashes.

I'm not saying the above WILL happen of course, but it's always useful to paint a mental picture of all the things you imagine COULD happen. And ultimately I don't know which future will materialize, so I'm happy to continue holding the PP and go about my business.
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Re: The Bond Dream Room

Post by Xan » Tue Sep 01, 2020 9:31 pm

That could be, Smith.

It could be (either instead or also?) that LTTs are bounded on both sides for a long time: they can't go up because the government wouldn't want high interest payments, and they can't go down because zero is a boundary of some kind.

If that's the case, and it's MediumTex's game of ping-pong for a while where small changes in yield result in outsized (but not too huge) changes in value, then I'm considering doing a frequent (daily? weekly?) rebalance between cash and LTTs. Every day (or whenever), make it so your cash and LTTs have the same value as each other. That would allow you to capture the gains from the range-bound volatility.
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Re: The Bond Dream Room

Post by modeljc » Wed Sep 02, 2020 3:58 pm

Xan wrote:
Tue Sep 01, 2020 9:31 pm
That could be, Smith.

It could be (either instead or also?) that LTTs are bounded on both sides for a long time: they can't go up because the government wouldn't want high interest payments, and they can't go down because zero is a boundary of some kind.

If that's the case, and it's MediumTex's game of ping-pong for a while where small changes in yield result in outsized (but not too huge) changes in value, then I'm considering doing a frequent (daily? weekly?) rebalance between cash and LTTs. Every day (or whenever), make it so your cash and LTTs have the same value as each other. That would allow you to capture the gains from the range-bound volatility.
Thanks! I like the idea. I'm a little low on Cash and would love to add to it little by little. Let's do this weekly so how do you implement a plan. Can you give the board an example. Let's start with $100,000 in Cash and $100,000 in LTTs. If LTTs go down 2% for the week do you take cash and buy enought to equal your cash? Or do you only sell LTTs when they are above your cash level. I'm a little fuzzy pls. help.
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Re: The Bond Dream Room

Post by Xan » Wed Sep 02, 2020 8:47 pm

modeljc wrote:
Wed Sep 02, 2020 3:58 pm
Xan wrote:
Tue Sep 01, 2020 9:31 pm
That could be, Smith.

It could be (either instead or also?) that LTTs are bounded on both sides for a long time: they can't go up because the government wouldn't want high interest payments, and they can't go down because zero is a boundary of some kind.

If that's the case, and it's MediumTex's game of ping-pong for a while where small changes in yield result in outsized (but not too huge) changes in value, then I'm considering doing a frequent (daily? weekly?) rebalance between cash and LTTs. Every day (or whenever), make it so your cash and LTTs have the same value as each other. That would allow you to capture the gains from the range-bound volatility.
Thanks! I like the idea. I'm a little low on Cash and would love to add to it little by little. Let's do this weekly so how do you implement a plan. Can you give the board an example. Let's start with $100,000 in Cash and $100,000 in LTTs. If LTTs go down 2% for the week do you take cash and buy enought to equal your cash? Or do you only sell LTTs when they are above your cash level. I'm a little fuzzy pls. help.
I'm not actually doing it; it's just an idea I've kicked around a little.

You could do it any which way, but the way I envision, each week (or whenever), you would buy or sell enough LTTs such that your cash and LTTs were the same as each other. Then normal "rebalance everything" rules would apply if stocks or gold (or I suppose both cash and LTT at the same time) hit a normal rebalancing band.

Of course this would not be very tax-friendly: the gains would be short-term gains. That's better than no gains, of course. Before doing it, I'd want to do some more modeling on what happens if I'm wrong, and LTTs either go way up or way down rather than being range-bound.
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Re: The Bond Dream Room

Post by dualstow » Thu Sep 03, 2020 8:36 am

{from a Stock thread}
sophie wrote:
Thu Sep 03, 2020 8:25 am
Guess I should keep an eye on the allocations if you guys are all rebalancing. I'm within a couple percentage points of bonds crossing the low end of the band.
Do you know what you’re going to buy, Sophie? Bonds or bond ETFs?
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Re: The Bond Dream Room

Post by modeljc » Sat Sep 05, 2020 3:10 pm

Xan wrote:
Wed Sep 02, 2020 8:47 pm
modeljc wrote:
Wed Sep 02, 2020 3:58 pm
Xan wrote:
Tue Sep 01, 2020 9:31 pm
That could be, Smith.

It could be (either instead or also?) that LTTs are bounded on both sides for a long time: they can't go up because the government wouldn't want high interest payments, and they can't go down because zero is a boundary of some kind.

If that's the case, and it's MediumTex's game of ping-pong for a while where small changes in yield result in outsized (but not too huge) changes in value, then I'm considering doing a frequent (daily? weekly?) rebalance between cash and LTTs. Every day (or whenever), make it so your cash and LTTs have the same value as each other. That would allow you to capture the gains from the range-bound volatility.
Thanks! I like the idea. I'm a little low on Cash and would love to add to it little by little. Let's do this weekly so how do you implement a plan. Can you give the board an example. Let's start with $100,000 in Cash and $100,000 in LTTs. If LTTs go down 2% for the week do you take cash and buy enought to equal your cash? Or do you only sell LTTs when they are above your cash level. I'm a little fuzzy pls. help.
I'm not actually doing it; it's just an idea I've kicked around a little.

You could do it any which way, but the way I envision, each week (or whenever), you would buy or sell enough LTTs such that your cash and LTTs were the same as each other. Then normal "rebalance everything" rules would apply if stocks or gold (or I suppose both cash and LTT at the same time) hit a normal rebalancing band.

Of course this would not be very tax-friendly: the gains would be short-term gains. That's better than no gains, of course. Before doing it, I'd want to do some more modeling on what happens if I'm wrong, and LTTs either go way up or way down rather than being range-bound.
I did a six month, weekly paper trade starting with $100,000 in Cash and $100,000 in TLT. I did not change if the week did not produce at least 1%. Lots of price change ranging from 1.0% to 7.3% per week. 42.7% total up or down. But I did not make but $176 or .17% over buy and hold. The shares in TLT went down from 686 to 643 or -6.3%. Started Sept 2, 2019 to Feb 28, 2020. This seemed to hold a lot of promise for a tax free account and pick up a lot of action if TLT is range bound. It seems the number of shares involved are to small to make much difference. Buying or selling between 1.47 shares and 11.46 shares. Any ideas to cpature more Dollar action?
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