The Bond Dream Room

Discussion of the Bond portion of the Permanent Portfolio

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sophie
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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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dualstow
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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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buddtholomew
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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 Desert » Sat May 05, 2018 8:20 pm

dualstow wrote:I think I love you, barrett. <3
;D
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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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