The Less Pretty Bond Thread

[boglerdude]

Zero lower bound. Stocks can go to infinity w/inflation, bonds cant. How has a Japanese version of EDV done, when 30yr rates can only move between 0% and .5%

[pmward]

Zero lower bound. Stocks can go to infinity w/inflation, bonds cant. How has a Japanese version of EDV done, when 30yr rates can only move between 0% and .5%

30 year rates are NOT controlled by the Fed. They are not pinned at 0%. The market can take them much lower. The only rate the Fed sets is the overnight rate. The rest are set by the market. And the Fed is buying long treasuries right now, which places downward pressure on long yields.

[boglerdude]

"What has happened with German and Japanese versions of EDV? If the rate moves from 1% to .5% does that mean the fund increases ~25%? in value (because you'd collect twice the interest over 30 years at 1% compared to .5%). So would (does?) Japanese/German EDV bounce around between -1% to 1% with huge swings?"

https://www.bogleheads.org/forum/viewto ... 6#p5181336

[boglerdude]

Dalio Says 'You'd Be Pretty Crazy' to Hold Bonds Right Now

https://www.youtube.com/watch?v=9jmXZkfUZwY

[Dieter]

Dalio Says 'You'd Be Pretty Crazy' to Hold Bonds Right Now

https://www.youtube.com/watch?v=9jmXZkfUZwY

He says bonds today are a bad bad investment like they were from 1930 - 1945.

They do look like a good diversifier from 37 - 46 per the following -- https://awealthofcommonsense.com/2015/0 ... -scenario/

And he basically seems to be saying to put money in stock of good companies as the alternative?

I do share some concerns. Most likely inflation IMO, but damn, I think going to be some shocks along the way....

[dualstow]

Dalio Says 'You'd Be Pretty Crazy' to Hold Bonds Right Now
https://www.youtube.com/watch?v=9jmXZkfUZwY

...
And he basically seems to be saying to put money in stock of good companies as the alternative?
...

Ha! Pass

[mathjak107]

Dalio Says 'You'd Be Pretty Crazy' to Hold Bonds Right Now
https://www.youtube.com/watch?v=9jmXZkfUZwY

...
And he basically seems to be saying to put money in stock of good companies as the alternative?
...

Ha! Pass

even i disagree with dalio .... never ever try to use stocks as a proxy for fixed income investments. at least use high yield as a proxy

[Ad Orientem]

Dalio Says 'You'd Be Pretty Crazy' to Hold Bonds Right Now
https://www.youtube.com/watch?v=9jmXZkfUZwY

...
And he basically seems to be saying to put money in stock of good companies as the alternative?
...

Ha! Pass

even i disagree with dalio .... never ever try to use stocks as a proxy for fixed income investments. at least use high yield as a proxy

VIG

[mathjak107]

Vig is never a proxy for fixed income ...they are stocks end of story ..when stocks sink it sinks ..I owned vig for quite a while ....

[Ad Orientem]

Wharton’s Jeremy Siegel declares end to the 40-year bull market in bonds

https://www.cnbc.com/2020/05/05/forty-y ... iegel.html

[mathjak107]

Wharton’s Jeremy Siegel declares end to the 40-year bull market in bonds

https://www.cnbc.com/2020/05/05/forty-y ... iegel.html

If Krugman had said it, you could back up truck buying LTT. Siegel is at least worth a large trunkful, tho.

siegel is likely right ... but right now we still have a whole lot of bad stuff in the economy and equities to deal with so the big question is when does it reverse ...who knows , maybe it did as rates have been creeping up the last month .

[sophie]

Wharton’s Jeremy Siegel declares end to the 40-year bull market in bonds

https://www.cnbc.com/2020/05/05/forty-y ... iegel.html

If I had a dime for every article published in the past 10 years saying exactly the same thing, I wouldn't have to buy any bonds.

[Ad Orientem]

Wharton’s Jeremy Siegel declares end to the 40-year bull market in bonds

https://www.cnbc.com/2020/05/05/forty-y ... iegel.html

If I had a dime for every article published in the past 10 years saying exactly the same thing, I wouldn't have to buy any bonds.

LOL. I can remember similar predictions back in the 90s when yields fell all the way to 7%. In this case though, my gut says he is right. The bond market seems to have become divorced from economic reality. The world is drowning in debt and we are likely facing a wave of defaults and bankruptcies. The only thing preventing a bond market rout is the Fed and its printing press. How long can that can continue? For now it seems ok and maybe even necessary. But eventually they will have to slow the flow of free money or risk sparking inflation. Looking at this from a long term perspective I think bonds have become exactly what they are not supposed to be... high risk and very low return.

[bedraggled]

Could somebody or many of you comment on the bond structure collapsing. All those unpaid bonds and interest payments missed might manifest as deflation. Kinda reminds me of 1929-1932.

Interest rates did spike in 1930 as bankers only wanted to lend to the best borrowers; the bankers then found out there were no borrowers, so rates plummeted.

Bonds may be a great place to wallow.

Thanks.

[pmward]

Could somebody or many of you comment on the bond structure collapsing. All those unpaid bonds and interest payments missed might manifest as deflation. Kinda reminds me of 1929-1932.

Interest rates did spike in 1930 as bankers only wanted to lend to the best borrowers; the bankers then found out there were no borrowers, so rates plummeted.

Bonds may be a great place to wallow.

Thanks.

Yes this is exactly how it works. Treasuries perform great in this scenario. Corporates, mortgage backed, junk bonds, ext will implode though. All the money coming out of those riskier bonds will wind up in treasuries, so there would be a massive bid.

[bedraggled]

Maybe this current interest rate increase leads to a significant increase in the prices of LTTs. This could be the first swoon in one of Harry's 4 categories for me... but maybe not. This ain't dull.

[Tortoise]

Remember, the Fed recently announced that it would start buying corporate bonds if needed. So there's that.

[pmward]

Remember, the Fed recently announced that it would start buying corporate bonds if needed. So there's that.

That doesn't necessarily stop what I've stated. If they buy those corporate bonds, they are buying them from institutions, and those institutions are likely to take the cash and funnel it into treasuries. It may place a floor on losses in the corporate/junk/mortgage backed bond markets, but it still juices the treasury market.

[mukramesh]

Aren't low rates just the result of asset price inflation -> the same that has been seen in stocks, gold, real estate, etc.? Why should the bond bull market be over but bull markets?

[pmward]

Aren't low rates just the result of asset price inflation -> the same that has been seen in stocks, gold, real estate, etc.? Why should the bond bull market be over but bull markets?

There are multiple factors that go into the price of bonds, but that certainly is a big one.

[Kevin K.]

So given all of these well-made points (and on the heels of the Dalio article I posted which goes into granular detail about money printing and fiat currencies in general) might a prudent "tweak" for these times be to maintain the PP bond barbell but with 15-20% in LTT's? At ~1.6% there's still a chance for them to give spectacular returns if rates drop to 0 or lower but conversely you limit the devastation that'd happen if rates spike by holding a lower percentage than the 25% the PP calls for.
Certainly seems like a better approach than going all ITT's.

[Vil]

There are multiple factors that go into the price of bonds

As I haven't received the notification email from Fed (they promised me, but anyway... ) and as certainly you have more information than me - what's going on with their plans to buy corporate bonds ? Is that only a word (even though widely spread) or any real actions taken ? Can see that HYG and HYLB has quite an increase of AUMs in the last week - 6.84% and 8.41% respectively.. how do you see things going with high yield bonds ?

[pmward]

There are multiple factors that go into the price of bonds

As I haven't received the notification email from Fed (they promised me, but anyway... ) and as certainly you have more information than me - what's going on with their plans to buy corporate bonds ? Is that only a word (even though widely spread) or any real actions taken ? Can see that HYG and HYLB has quite an increase of AUMs in the last week - 6.84% and 8.41% respectively.. how do you see things going with high yield bonds ?

If what the stock market is telling us is true, and they provided enough stimulus to pull though this deep recession quickly, then I see no reason why high yield won't do well going forward (at least until the inevitable day we do finally get a real corporate debt deleveraging), especially with the backstop from the Fed. I have not looked at the exact purchase numbers from the Fed, I was listening to a podcast though where someone that works as a high yield market maker said the day the Fed announced they were buying high yield their phone was off the hook with institutions wanting to buy high yield as well. The Fed might not have to buy as much as we think, as just them announcing they are buying attracts money as institutions like to bet with the Fed.

This is also unprecedented here in the U.S. so who knows how it will play out in the end? Might be worthwhile seeing how they performed in Japan after the central bank started purchasing. We really are following the Japanese blueprint... and their yields are still low and bonds have still performed well for years. Why do we expect to be any different?

[boglerdude]

Why should I be buying EDV yielding 1.3% when I could pay down my 2% mortgage?

[mathjak107]

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