Whoa...what happened? 2016 Q4 bond performance.

Discussion of the Bond portion of the Permanent Portfolio

Moderator: Global Moderator

Post Reply
PFG
Junior Member
Junior Member
Posts: 22
Joined: Mon Feb 04, 2013 11:52 am
Location: Lonestar State

Whoa...what happened? 2016 Q4 bond performance.

Post by PFG » Mon Dec 19, 2016 1:27 pm

I chose the PP for many reasons, one of the top being my desire to set it, forget it, and rarely check it. I usually view my PP once each quarter. Today I peeked and...whoa! Holy moly bond slide. Q3 to Q4 loss in the $18K range. Without going into too much detail, can someone explain what happened here at the end of 2016 to the bond market?

I'm holding individual purchased 30 yr treasuries parked in an IRA and 401k. Not going to jump off any cliffs, would just like to know what occurred with TBonds.
curlew
Executive Member
Executive Member
Posts: 287
Joined: Thu Mar 24, 2016 4:14 pm

Re: Whoa...what happened? 2016 Q4 bond performance.

Post by curlew » Mon Dec 19, 2016 2:32 pm

Didn't you hear that Donald Trump is making America Great Again? The dollar and stock markets have reached all time highs since the election so happy times are here again. So no need for the safe harbors of gold, bonds, and cash any more.

But I think the simplest answer is that the FED has finally stated that interest rates are going to start rising. I think I read recently that they are predicting three increases next year.
User avatar
dualstow
Executive Member
Executive Member
Posts: 14231
Joined: Wed Oct 27, 2010 10:18 am
Location: synagogue of Satan
Contact:

Re: Whoa...what happened? 2016 Q4 bond performance.

Post by dualstow » Mon Dec 19, 2016 2:36 pm

Yes, please don't jump off any cliffs. :)

Anybody out there correct me if I'm wrong, but what I *think* is going on is the anticipation of higher interest rates. It may only be 25 basis points here and there through 2017, but if ten-year notes start paying what 30-year-bonds pay, no one will want to hold 30-year bonds.

I've written this elsewhere, but I've seen my best bonds come down from 40% profit to under 23%, and my whole bond allocation's profit is down more than $11K.

I missed Janet Yellen's speech this afternoon. Was getting cat feeding instructions from a neighbor.
Sam Bankman-Fried sentenced to 25 years
User avatar
sophie
Executive Member
Executive Member
Posts: 1959
Joined: Mon Apr 23, 2012 7:15 pm

Re: Whoa...what happened? 2016 Q4 bond performance.

Post by sophie » Mon Dec 19, 2016 7:33 pm

I'm guessing it's a combination of anticipated higher interest rates and Wall Street euphoria at Trump's election. Which is exactly the reverse of what was predicted to happen, but I guess that's a topic for another thread :-)

The last time the Fed raised rates, bond rates went up just like they are now, and the Fed was saying they would raise rates again later in the year. I was so certain that rates would go up again that I locked a mortgage rate too early on my apt purchase, and ended up over-running the lock period and paying a few hundred $$ in extension fees. Before the next meeting, the GDP numbers sputtered. The Fed changed its mind, and bond rates fell again. So you just never know.
User avatar
I Shrugged
Executive Member
Executive Member
Posts: 2062
Joined: Tue Dec 18, 2012 6:35 pm

Re: Whoa...what happened? 2016 Q4 bond performance.

Post by I Shrugged » Tue Dec 20, 2016 9:22 am

I just have to keep reminding myself that I only have 25% in bonds. :o
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

Re: Whoa...what happened? 2016 Q4 bond performance.

Post by ochotona » Tue Dec 20, 2016 10:26 pm

Don't sell. They are going to pop back up eventually, they are way oversold short term. If you sell now, you sell at a bottom.
barrett
Executive Member
Executive Member
Posts: 1982
Joined: Sat Jan 04, 2014 2:54 pm

Re: Whoa...what happened? 2016 Q4 bond performance.

Post by barrett » Wed Dec 21, 2016 8:38 am

ochotona wrote:Don't sell. They are going to pop back up eventually, they are way oversold short term. If you sell now, you sell at a bottom.
Ocho, how do you know this? Are you yourself loading up on long bonds now?
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

Re: Whoa...what happened? 2016 Q4 bond performance.

Post by ochotona » Wed Dec 21, 2016 8:50 am

barrett wrote:
ochotona wrote:Don't sell. They are going to pop back up eventually, they are way oversold short term. If you sell now, you sell at a bottom.
Ocho, how do you know this? Are you yourself loading up on long bonds now?
Context - I mean they are short-term oversold. Long-term... no one knows. There will be a reversion to the shorter-term moving averages, it usually happens. Beyond that... stick to your strategy.

Personally, I only own very few long bonds in a small test portfolio. I combined 30% TLO and 70% SCHR to make a "synthetic" IEF 10-year, because I am too cheap to pay $8.95 to trade IEF at Schwab, SCHR and TLO trade for free. But I will rebalance eventually, and buy bonds.
Kbg
Executive Member
Executive Member
Posts: 2815
Joined: Fri May 23, 2014 4:18 pm

Re: Whoa...what happened? 2016 Q4 bond performance.

Post by Kbg » Thu Dec 22, 2016 10:10 pm

Historically LTTs are almost as volatile as stocks so a big move either way should not be surprising. If interest rates head back to the 5-6% range your LTTs are going to remind you of a stock bear market and you can expect them to get cut in half give or take.
Post Reply