The Bond Dream Room

Discussion of the Bond portion of the Permanent Portfolio

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dualstow
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Re: The Bond Dream Room

Post by dualstow » Wed Mar 28, 2018 3:54 pm

Tyler wrote:I always pictured this.

https://www.picclickimg.com/00/s/MTAzMV ... ALL-_1.jpg
Actually, you know what? That's it.
Never mind what I wrote above.
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Re: The Bond Dream Room

Post by Tortoise » Wed Mar 28, 2018 7:03 pm

This is the first image returned by Google images when I search for "dual stow":

Image

But yeah, the guns are cooler.
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dualstow
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Re: The Bond Dream Room

Post by dualstow » Thu May 03, 2018 12:36 pm

Well guys, and ladies,

I sold a bunch of my long bonds this morning at a bit above breakeven. Don't copy me, as nuanced thought did not come into play here.
If long bonds soar in price this year or next, I'll be happy about the ones I held onto. But, I don't think I would have made a significant amount of money by holding onto all of them.
It's been a nice run collecting the 3+% interest and knowing that I could hold on until I hit retirement age. And, I know that these bonds are for protection, not yield.

However:
- Some of these bonds are due to be sold in a few years anyway, per Harry's rule. They would have had only 20 years left on them.
- Despite what I said above about protection, it bothers me that new 10-years are earning nearly as much interest as my 30's.
- If we go into a Japan-style deflationary period, I'll get through it without these instruments.

So I'll have a smaller pp. No biggie.
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ochotona
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Re: The Bond Dream Room

Post by ochotona » Thu May 03, 2018 2:54 pm

That yield curve is getting flat from 7 to 20 years. It's a tough time for a bond investor. Very emotional and confusing.

My Dream Story for bonds would be to get some 10 years at 4%, then buy junk bonds on sale during next recession.
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Re: The Bond Dream Room

Post by buddtholomew » Thu May 03, 2018 3:55 pm

DS, how does this change your allocation?
Where did the sale proceeds go?

If you don’t mind.
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Re: The Bond Dream Room

Post by sophie » Fri May 04, 2018 7:44 am

dualstow wrote:Well guys, and ladies,

I sold a bunch of my long bonds this morning at a bit above breakeven. Don't copy me, as nuanced thought did not come into play here.
If long bonds soar in price this year or next, I'll be happy about the ones I held onto. But, I don't think I would have made a significant amount of money by holding onto all of them.
It's been a nice run collecting the 3+% interest and knowing that I could hold on until I hit retirement age. And, I know that these bonds are for protection, not yield.

However:
- Some of these bonds are due to be sold in a few years anyway, per Harry's rule. They would have had only 20 years left on them.
- Despite what I said above about protection, it bothers me that new 10-years are earning nearly as much interest as my 30's.
- If we go into a Japan-style deflationary period, I'll get through it without these instruments.

So I'll have a smaller pp. No biggie.
Interesting move, dualstow. How much of your PP bonds did you sell and what percentage are you at now? And what would you do with the proceeds if you kept them in the PP?

My PP is now in Golden Butterfly range, which would allow gold & bonds to get as low as 15%. Not there yet. I'm not motivated to do anything drastic right now because I expect the long, slow slide in long bond prices will be counterbalanced by coupon payments. I do have a slug of bonds in taxable though, and will tax-loss harvest them at some point. However, I have a monthly auto-invest into FLBIX (long treasury fund) and wondering about stopping that until the Fed is done raising rates.
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Re: The Bond Dream Room

Post by dualstow » Fri May 04, 2018 1:21 pm

buddtholomew wrote:how does this change your allocation?
Where did the sale proceeds go?
sophie wrote: ... How much of your PP bonds did you sell and what percentage are you at now? And what would you do with the proceeds if you kept them in the PP?
Budd, Soph (what light through yonder window breaks? O0 )

The short answer is that the allocation is way out of whack right now. It was a little under 40% of my 30-year bonds that I sold/am selling. I'm in a holding pattern right now. I know Harry never advised this, but I want to see where interest rates go from here. I'd be happy to buy long bonds in the future, but not right now.

And, I have no desire to sell gold or anything else to even things out. I'm just going to let the proceeds sit in Vanguard's prime money market fund until they return to long bonds or one of the other pp assets.
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Re: The Bond Dream Room

Post by buddtholomew » Fri May 04, 2018 2:00 pm

dualstow wrote:
buddtholomew wrote:how does this change your allocation?
Where did the sale proceeds go?
sophie wrote: ... How much of your PP bonds did you sell and what percentage are you at now? And what would you do with the proceeds if you kept them in the PP?
Budd, Soph (what light through yonder window breaks? O0 )

The short answer is that the allocation is way out of whack right now. It was a little under 40% of my 30-year bonds that I sold/am selling. I'm in a holding pattern right now. I know Harry never advised this, but I want to see where interest rates go from here. I'd be happy to buy long bonds in the future, but not right now.

And, I have no desire to sell gold or anything else to even things out. I'm just going to let the proceeds sit in Vanguard's prime money market fund until they return to long bonds or one of the other pp assets.
Nothing wrong with that at all.
Have you considered calculating your fixed income duration across LTT’s and Cash?
You may find a new anchor point you are comfortable with so that you are mentally more confident of the approach.
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Re: The Bond Dream Room

Post by dualstow » Fri May 04, 2018 4:09 pm

I'm not going to worry about the duration because even though my allocations are off -- not just bonds and overall duration but now asset allocation as well -- I still own high quality instruments. Save for a few crazy stocks, I have holdings that I am fine with long term.

By the end of 2018 I'll see how 2- and 10-year rates are and then will take a good look at my avg duration.
(10-year because I like to compare it to stocks and 2-year because I might just pile into them).
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Re: The Bond Dream Room

Post by dualstow » Fri May 04, 2018 5:13 pm

I should add that it hurt a little that one was going to pay a bunch of interest in mid-May. But, I have held on to stocks I wanted to shed b/c I was waiting for the dividend, and that didn't end well. ???
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Re: The Bond Dream Room

Post by barrett » Fri May 04, 2018 6:01 pm

dualstow wrote:I should add that it hurt a little that one was going to pay a bunch of interest in mid-May. But, I have held on to stocks I wanted to shed b/c I was waiting for the dividend, and that didn't end well. ???
Someone correct me if I'm wrong but doesn't one get the "accrued interest" when selling bonds as dualstow is describing?
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Re: The Bond Dream Room

Post by dualstow » Fri May 04, 2018 6:04 pm

Do I? How does that work, like a stock dividend’s date of record or something?
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Re: The Bond Dream Room

Post by barrett » Fri May 04, 2018 7:58 pm

dualstow wrote:Do I? How does that work, like a stock dividend’s date of record or something?
This is just from a quick search, dualstow.

This is from Treasury Direct:

When purchasing a Treasury bond, any interest accrued since the last interest payment is added to the bond purchase price. At the next interest payment date the investor receives the full interest payment.

Use the following formula to figure accrued interest:

A = P x r ( d / t )/2 A = Accrued interest
P = Face value
r = interest rate of Treasury bond
d = # of days since last coupon payment
t = # of days in current coupon period

Example: A 5% 30-year bond ($1,000 principal) is purchased 91 days after the last coupon payment. The current coupon period contains 182 days.

A = 1000 x .05 (91/182)/2 , solving

A = $12.50

So you don't actually see it as an "interest payment" when you sell, meaning that you don't see a price that you sold the bond at plus an accrued interest payment. You just get a higher price for the bond because it is closer to making a payout. Otherwise people would just buy bonds before they pay interest and then dump them again. At least that is my understanding.

Gosh, I sure hope I am correct on this because I recently sold some bonds that pay interest on 5/15.
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Re: The Bond Dream Room

Post by dualstow » Sat May 05, 2018 10:35 am

I think I love you, barrett. <3
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Re: The Bond Dream Room

Post by sophie » Sun May 06, 2018 7:41 am

So dualstow I'm puzzled...did you sell the long bonds because you anticipate losses by hanging onto them? And now you're sitting on the cash to await events? (Btw I can confirm what Barrett said: you should have gotten a proportion of the interest payment when you sold.)

Given the Fed's proclamation that they'll raise rates 3 more times this year, it's totally reasonable. I was thinking to just hang on to what I have though, because I'm guessing they may well renege on this given the recent stock market performance, and as long as European long bonds are still markedly lower in rate than US ones the 30 year interest rates won't be able to increase as sharply as they've done in the past.
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Re: The Bond Dream Room

Post by buddtholomew » Sun May 06, 2018 8:05 am

I keep coming back to “if” stocks fall, bonds rise and that so far has driven my decision to continue with the plan. I think it’s inportant to not only calculate LTT upside potential but downside protection if equities experience a significant decline.
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Re: The Bond Dream Room

Post by dualstow » Sun May 06, 2018 8:36 am

Sophie,
It’s not that I anticipate losses, though I guess I feel I avoided some. I just don’t think the ratio of risk/protection suits me right now. I’m not dissolving the rest of the pp. However, I’ll surrender that protection for now, and I’ll get pretty good yield on shorter term notes.

Again, I know it’s not supposed to be about yield.

If we go into 30 years of deflation and I only have this small batch of long bonds left, I’ll be ok.
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Re: The Bond Dream Room

Post by hardlawjockey » Tue May 08, 2018 6:26 pm

These are the times that try men's souls.

Or maybe not. I vowed not to look at my portfolio for a year back in January and so far I've been successful.

Funny thing is I know that almost all of the long bonds (held directly) I have in my portfolio still have a higher yield than what shows up on the ticker screen when I watch Fox Business. So it will be curious how that plays out at the end of the year.
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Re: The Bond Dream Room

Post by dualstow » Tue May 08, 2018 8:53 pm

The bonds I still have sport good yields. It’s easy to hold them.
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Re: The Bond Dream Room

Post by barrett » Fri May 11, 2018 3:18 pm

dualstow wrote:
Sun May 06, 2018 8:36 am
Sophie,
It’s not that I anticipate losses, though I guess I feel I avoided some. I just don’t think the ratio of risk/protection suits me right now. I’m not dissolving the rest of the pp. However, I’ll surrender that protection for now, and I’ll get pretty good yield on shorter term notes.

Again, I know it’s not supposed to be about yield.

If we go into 30 years of deflation and I only have this small batch of long bonds left, I’ll be ok.
As of the end of the day today, the one-year rate is 2.28% and the 30-year rate is 3.10%. Not sure what to make of this flattening curve but I feel the same way, dualstow.

Of course, if we do go into a deflation that really does last more than, say, ten years, we'd be forced to sell our long bonds and exchange them for super-low yielding 30-year notes.
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Re: The Bond Dream Room

Post by ochotona » Wed May 16, 2018 3:33 pm

I'm really waiting for the 10-to-30 year buying opportunity. Dare I dream it, even in the Bond Dream Room? Buy at 4% then get more QE?
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Re: The Bond Dream Room

Post by sophie » Thu May 17, 2018 7:03 am

So besides dualstow, what are all of you doing about bonds?

I stopped auto-investing in long bonds but plan to keep what I have and let the percentage drift down while I keep collecting interest payments. Two things will have to happen before I jump back into buying long bonds: 1) the Fed needs to stop talking about raising rates, and 2) the international investors buying 30 year bonds need to wake up, notice the flat yield curve, and rush into shorter durations.
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Re: The Bond Dream Room

Post by sophie » Thu May 17, 2018 7:36 am

Well, the issue is that there is a bureaucracy (the Fed) whose job it is to manipulate the bond market, and they're actively doing so. No such organization exists for stocks.

However you're right...I've just joined the "PP hypocrite" club I guess. I'm still keeping enough bonds to be in balance though.
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Re: The Bond Dream Room

Post by dualstow » Thu May 17, 2018 7:46 am

sophie wrote:
Thu May 17, 2018 7:36 am
However you're right...I've just joined the "PP hypocrite" club I guess. I'm still keeping enough bonds to be in balance though.
Keeping enough- does that include buying more if it drops below 15%?
I'm at 15% right now.
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Re: The Bond Dream Room

Post by Kriegsspiel » Thu May 17, 2018 8:46 am

I haven't bought bonds in years. Back when I was working I'd buy the lagging asset. Now that I'm going back to work I'm going to accumulate cash until I need to rebalance.
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