The Less Pretty Bond Thread

[pmward]

The Fed just announced unlimited bond buying for all types of bonds (including corporate). Bonds were going no-bid at times last week. This unprecedented move should grease the bond markets gears again and get things moving (not to mention get bond ETF's back to NAV). Bond markets were basically broken last week. With the Fed guaranteeing functioning bond markets we should see bonds start to "work" again, and likely a calmer equity market as well (at least one that only has to worry about the virus, not the virus and lack of liquidity at the same time).

[Cortopassi]

I was amazed that Kashkari used the word "infinite" on how much the Fed could buy/print last night on 60 minutes.

There was no hesitation.

For those who have been waiting for inflation, if these current times don't cause some level of it, it will be (insert word here)? Amazing? Unbelievable? Not Possible?

[shekels]

The Fed just announced unlimited bond buying for all types of bonds (including corporate). Bonds were going no-bid at times last week. This unprecedented move should grease the bond markets gears again and get things moving (not to mention get bond ETF's back to NAV). Bond markets were basically broken last week. With the Fed guaranteeing functioning bond markets we should see bonds start to "work" again, and likely a calmer equity market as well (at least one that only has to worry about the virus, not the virus and lack of liquidity at the same time).

Thank you FED. Can I have another BAILOUT.
To Big to fail all over again..

[dualstow]

Time for gold to shine?

[pmward]

And look at that. The Fed steps up as bond buyer of last resort and what happens? People and institutions stop panicking about whether or not there will be someone there to buy their bonds if they need to sell. The bond market becomes unstuck and starts working again. Bond ETF's go back to NAV. And, most importantly for us, bonds start actually working as a defensive asset again. Liquidity is what was needed.

[Kriegsspiel]

How will bond yields ever rise again if someone is always there to buy them and "artificially" keep the interest rates down?

[pmward]

How will bond yields ever rise again if someone is always there to buy them and "artificially" keep the interest rates down?

This isn't a matter of nudging the yield this way or that way. This is the secondary market we are talking about, yields were long since locked in. This was a matter of bonds in the secondary market literally going no bid, which was caused by massive systematic selling from the risk parity and vol targeting funds. These funds sell for no other reason than because volatility had went up. There was no fundamental reason behind the automated selling that stripped the market dry last week. What the Fed did is a crisis tactic. I would be curious to see how much they actually purchased today. Odds are it's less than you would assume. It's more of a calm the panic down tactic than anything.

[Kbg]

How will bond yields ever rise again if someone is always there to buy them and "artificially" keep the interest rates down?

And there you have it...why we should not assume anything about interest rates any more.

[boglerdude]

Only the Fed would buy long bonds with negative rates. When does it make sense to underweight them in the PP?

[Tortoise]

Only the Fed would buy long bonds with negative rates. When does it make sense to underweight them in the PP?

This is a good question. What percentage of total Treasury debt would need to be held by the Fed before the Treasury market could cease to be considered a true “market” in the normal sense (i.e. many buyers and sellers)?

Would Harry Browne have advocated continuing to hold an asset for which a normal market no longer exists?

[barrett]

Only the Fed would buy long bonds with negative rates. When does it make sense to underweight them in the PP?

I think many pension funds would still continue to hold them, no? One has to consider the alternatives of stocks, corporate bonds, etc. Isn't this how things have worked in places like Japan and Europe where rates have been negative?

[pmward]

Only the Fed would buy long bonds with negative rates. When does it make sense to underweight them in the PP?

This is a good question. What percentage of total Treasury debt would need to be held by the Fed before the Treasury market could cease to be considered a true “market” in the normal sense (i.e. many buyers and sellers)?

Would Harry Browne have advocated continuing to hold an asset for which a normal market no longer exists?

There is still a market. Matter of fact, it turns into a shrinking market, which means that the moves of the people in the market have a more pronounced effect. Bonds have worked out very well for people in Japan and the EU. I see no reason why they won't continue to work here for the deflation hedge that Harry chose them. Moreover, there are not any other better options available.

[boglerdude]

Zero lower bound. Stocks can go to infinity w/inflation, bonds cant. How has a Japanese version of EDV done, when 30yr rates can only move between 0% and .5%

[pmward]

Zero lower bound. Stocks can go to infinity w/inflation, bonds cant. How has a Japanese version of EDV done, when 30yr rates can only move between 0% and .5%

30 year rates are NOT controlled by the Fed. They are not pinned at 0%. The market can take them much lower. The only rate the Fed sets is the overnight rate. The rest are set by the market. And the Fed is buying long treasuries right now, which places downward pressure on long yields.

[boglerdude]

"What has happened with German and Japanese versions of EDV? If the rate moves from 1% to .5% does that mean the fund increases ~25%? in value (because you'd collect twice the interest over 30 years at 1% compared to .5%). So would (does?) Japanese/German EDV bounce around between -1% to 1% with huge swings?"

https://www.bogleheads.org/forum/viewto ... 6#p5181336

[boglerdude]

Dalio Says 'You'd Be Pretty Crazy' to Hold Bonds Right Now

https://www.youtube.com/watch?v=9jmXZkfUZwY

[Dieter]

Dalio Says 'You'd Be Pretty Crazy' to Hold Bonds Right Now

https://www.youtube.com/watch?v=9jmXZkfUZwY

He says bonds today are a bad bad investment like they were from 1930 - 1945.

They do look like a good diversifier from 37 - 46 per the following -- https://awealthofcommonsense.com/2015/0 ... -scenario/

And he basically seems to be saying to put money in stock of good companies as the alternative?

I do share some concerns. Most likely inflation IMO, but damn, I think going to be some shocks along the way....

[dualstow]

Dalio Says 'You'd Be Pretty Crazy' to Hold Bonds Right Now
https://www.youtube.com/watch?v=9jmXZkfUZwY

...
And he basically seems to be saying to put money in stock of good companies as the alternative?
...

Ha! Pass

[mathjak107]

Dalio Says 'You'd Be Pretty Crazy' to Hold Bonds Right Now
https://www.youtube.com/watch?v=9jmXZkfUZwY

...
And he basically seems to be saying to put money in stock of good companies as the alternative?
...

Ha! Pass

even i disagree with dalio .... never ever try to use stocks as a proxy for fixed income investments. at least use high yield as a proxy

[Ad Orientem]

Dalio Says 'You'd Be Pretty Crazy' to Hold Bonds Right Now
https://www.youtube.com/watch?v=9jmXZkfUZwY

...
And he basically seems to be saying to put money in stock of good companies as the alternative?
...

Ha! Pass

even i disagree with dalio .... never ever try to use stocks as a proxy for fixed income investments. at least use high yield as a proxy

VIG

[mathjak107]

Vig is never a proxy for fixed income ...they are stocks end of story ..when stocks sink it sinks ..I owned vig for quite a while ....

[Ad Orientem]

Wharton’s Jeremy Siegel declares end to the 40-year bull market in bonds

https://www.cnbc.com/2020/05/05/forty-y ... iegel.html

[mathjak107]

Wharton’s Jeremy Siegel declares end to the 40-year bull market in bonds

https://www.cnbc.com/2020/05/05/forty-y ... iegel.html

If Krugman had said it, you could back up truck buying LTT. Siegel is at least worth a large trunkful, tho.

siegel is likely right ... but right now we still have a whole lot of bad stuff in the economy and equities to deal with so the big question is when does it reverse ...who knows , maybe it did as rates have been creeping up the last month .

[sophie]

Wharton’s Jeremy Siegel declares end to the 40-year bull market in bonds

https://www.cnbc.com/2020/05/05/forty-y ... iegel.html

If I had a dime for every article published in the past 10 years saying exactly the same thing, I wouldn't have to buy any bonds.

[Ad Orientem]

Wharton’s Jeremy Siegel declares end to the 40-year bull market in bonds

https://www.cnbc.com/2020/05/05/forty-y ... iegel.html

If I had a dime for every article published in the past 10 years saying exactly the same thing, I wouldn't have to buy any bonds.

LOL. I can remember similar predictions back in the 90s when yields fell all the way to 7%. In this case though, my gut says he is right. The bond market seems to have become divorced from economic reality. The world is drowning in debt and we are likely facing a wave of defaults and bankruptcies. The only thing preventing a bond market rout is the Fed and its printing press. How long can that can continue? For now it seems ok and maybe even necessary. But eventually they will have to slow the flow of free money or risk sparking inflation. Looking at this from a long term perspective I think bonds have become exactly what they are not supposed to be... high risk and very low return.