Who understands bonds?

[thisisallen]

Bonds are tough to understand pour moi. Can I ask a question(s)?

When people post results of backtesting bonds (here and at sites like portfoliocharts.com) are they the results of a fund like TLT or are they the results of the cost of a 30 yr individual bond?

Does the result include the income from dividends?
For ex. some people post comparison results like LTTs vs ITTs. Are they considering the interest income? It would seem that the higher dividend from LTTs should boost the results in their favor, shouldn't they?

When you read on a financial site like Yahoo Finance that the 10 yr Treasury bond has gone up or down and next to it is the interest rate, then change is referring to the interest rate or the cost of the bond?

Thank you very much for your patience and answers to the queries.

[ochotona]

Stockcharts.com only posts prices, so you don't see total returns, most of which are from interest. PortfolioVisualizer.com gives you total return. In Yahoo Finance, you have a closing get price and an adjusted close. Adjusted includes interest, dividends, and splits. That is what you want.

No idea about Portfoliocharts.com I suspect total return but Tyler needs to confirm.

Yes LTT pay more interest than ITT but that their price goes down more if interest rates go up. So you have to ask, do you want more interest or less volatility?

[rickb]

Bonds are tough to understand pour moi. Can I ask a question(s)?

When people post results of backtesting bonds (here and at sites like portfoliocharts.com) are they the results of a fund like TLT or are they the results of the cost of a 30 yr individual bond?

I think most folks use data from the "Simba" spreadsheet for backtesting, which for long term bonds is Vanguard's Long Term Treasury fund as far back as it goes and perhaps something synthetic before then.

Does the result include the income from dividends?

Generally, yes. Backtesting should include dividends. BTW - my understanding is stockcharts.com perf charts are dividend adjusted (not simply price).

For ex. some people post comparison results like LTTs vs ITTs. Are they considering the interest income? It would seem that the higher dividend from LTTs should boost the results in their favor, shouldn't they?

To compare LTTs vs ITTs you should consider both price change (due to interest rate changes) and dividend income.

When you read on a financial site like Yahoo Finance that the 10 yr Treasury bond has gone up or down and next to it is the interest rate, then change is referring to the interest rate or the cost of the bond?

I don't know about other sites, but it looks like Yahoo Finance quotes the 10yr T-bond interest rate and shows the change in the interest rate (not the change in the cost of the bond).

[Tyler]

No idea about Portfoliocharts.com I suspect total return but Tyler needs to confirm.

That's correct. Portfolio Charts is based on the Simba numbers, which account for total returns including reinvested dividends/interest. The bond data follows Vanguard index fund data for the years when those funds existed, and uses data reconstruction methods to model how the same index would have performed in years prior to the fund's inception. The model is quite sophisticated and acts more like an appropriate bond ladder rather than tracking an individual bond. You can read about it here.

[thisisallen]

Very good info.

What is the takeaway for the traditional PP investor? In other words, the backtesting is based on an index for one thing. Second thing is that the results include re-invested dividends.
So for the PP investor buying individual 30 yr bonds and holding them for 10 yrs, are the results of the backtesting a good measure of past performance?
And traditionally the dividends are not re-invested in the PP. Again could this throw-off the "predictions" of the LTT backtesting results?

[Tyler]

The numbers are the best we have access to, and I'd consider them more than sufficient for general portfolio study. For reference, Craig also used Simba numbers when blogging about the PP and he also contributed gold information to the spreadsheet.

The Portfolio Charts numbers also include a simple annual rebalance (modeling bands is on my radar but harder than it sounds for the larger set of assets). The calculations don't care if you rebalance via selling assets or reinvesting dividends elsewhere, so I wouldn't really worry about that part. There will always be little details like that that could sway the returns a little bit one way or another, but they will pale in comparison to the larger market movements.

[thisisallen]

Sounds good. Very helpful.
Tyler, keep up excellent efforts. And THANKS!

[ochotona]

Pfizer called some of my bonds... can't figure out why. Why do it when interest rates going up?

[Kriegsspiel]

Maybe they accidentally put the 22 year old intern in charge of important shit.

[ochotona]

I am replying to barb on another thread. After my Pfizer bonds got called, I bought a 1 year CD at 1.1% rather than pitch the proceeds into new bonds. I want to wait a year and see. It's my wife's mad money, she'd be upset at me if she had a bond capital loss.