The Bond Dream Room

[dualstow]

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.

[barrett]

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?

[dualstow]

Do I? How does that work, like a stock dividend’s date of record or something?

[barrett]

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.

[dualstow]

I think I love you, barrett. <3

[sophie]

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.

[buddtholomew]

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.

[dualstow]

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.

[hardlawjockey]

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.

[dualstow]

The bonds I still have sport good yields. It’s easy to hold them.

[barrett]

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.

[ochotona]

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?

[sophie]

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.

[sophie]

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.

[dualstow]

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.

[Kriegsspiel]

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.

[buddtholomew]

That’s what kills me about this forum...
I say what everyone is thinking and also doing and get berated...
If everyone is so happy with the PP why aren’t you sticking to the plan?
Tell me.

[dualstow]

That’s what kills me about this forum...
I say what everyone is thinking and also doing and get berated...
If everyone is so happy with the PP why aren’t you sticking to the plan?
Tell me.

I'm not thrilled with the performance of the pp right now, but I also am not ready to give up on it.
None of my assets are out of the rebalancing bands, and if I let them breach a band, I'll say so.
I don't expect gold and long bonds to go up just because stocks are down, on the same day that they go down.
These are trying times, for sure, but it's just not productive to complain on a daily or hourly basis.
And, even if I *do* eventually leave the pp behind, it will be without any regret. I'm not losing money. The portion of my holdings that constitute the pp are doing just fine as a complete package.

You know it's entirely possible that gold will soar in the future but many of us were afraid to stock up while it was on sale (now).
It's also quite possible that long term rates will not follow short term rate rises. Nobody knows nothin'.

All is well, Budd. Just chill, enjoy life, put money away for the future.

[buddtholomew]

That’s what kills me about this forum...
I say what everyone is thinking and also doing and get berated...
If everyone is so happy with the PP why aren’t you sticking to the plan?
Tell me.

I'm not thrilled with the performance of the pp right now, but I also am not ready to give up on it.
None of my assets are out of the rebalancing bands, and if I let them breach a band, I'll say so.
I don't expect gold and long bonds to go up just because stocks are down, on the same day that they go down.
These are trying times, for sure, but it's just not productive to complain on a daily or hourly basis.
And, even if I *do* eventually leave the pp behind, it will be without any regret. I'm not losing money. The portion of my holdings that constitute the pp are doing just fine as a complete package.

You know it's entirely possible that gold will soar in the future but many of us were afraid to stock up while it was on sale (now).
It's also quite possible that long term rates will not follow short term rate rises. Nobody knows nothin'.

All is well, Budd. Just chill, enjoy life, put money away for the future.

Did not intend to suggest this applied to you specifically DS. I cannot complain because I am stock heavy, but it’s also misleading to those following the PP to the letter when others are not and telling you to relax.

We should all realize that any move away from 4 x 25 is exactly what we should worry about as our emotions and current economic climate may be clouding our judgement.

[flyingpylon]

That’s what kills me about this forum...
I say what everyone is thinking and also doing and get berated...
If everyone is so happy with the PP why aren’t you sticking to the plan?
Tell me.

Perhaps the people sticking to the plan are not yapping about it. Just a thought.

[Kriegsspiel]

That’s what kills me about this forum...
I say what everyone is thinking and also doing and get berated...
If everyone is so happy with the PP why aren’t you sticking to the plan?
Tell me.

I'll assume you were talking to me; I haven't hit any rebalancing bands. Since I started my CAGR has been between 3-5% real, which is what I expect the PP to do. I have mostly been saving up cash to buy a house, and some stocks in a tax-deferred space.

IIRC my overall allocation is pretty similar to yours, since my VP is all stocks, plus cash/real estate.

[dualstow]

Did not intend to suggest this applied to you specifically DS. I cannot complain because I am stock heavy, but it’s also misleading to those following the PP to the letter when others are not and telling you to relax.

I certainly didn't take it as directed at me.
Yeah, I think it's important to reveal when one is tinkering or even letting their portfolio drift.

[dualstow]

I just want to add: I've always been interested in Wellington and Wellesley (Vanguard funds). Boglehead madsinger, who has a pp of his own by the way, keeps tabs on how they're doing, among other portfolios. There are plenty of people who would never go for the pp but who would happily invest in the W's. They're not doing so hot either, as you can see.

https://www.bogleheads.org/forum/viewtopic.php?t=246040 (march 2018)

https://www.bogleheads.org/forum/viewto ... 0&t=248532 (april 2018)

[buddtholomew]

That’s what kills me about this forum...
I say what everyone is thinking and also doing and get berated...
If everyone is so happy with the PP why aren’t you sticking to the plan?
Tell me.

Perhaps the people sticking to the plan are not yapping about it. Just a thought.

Certainly possible, but I can’t know what lurkers are doing only those that post. Perhaps lurkers are the biggest offenders

[eufo]

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

I've been buying the dip in bonds. I was buying mid caps before that and it's paid off nicely (for now, anyway). Sticking to the plan. Am I alone?