30 year bond prices up 2-3% today!!

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30 year bond prices up 2-3% today!!

Postby grok87 » Fri Apr 05, 2013 3:23 pm

...
http://www.reuters.com/article/2013/04/ ... 1C20130405
..
A big move in 30 year bond prices. The nominal 30 year bond is up 2 and 15/32 and the 30 year tip is up 3 2/32. Yields are 2.87% and 0.364% respectively.
While this is nice for the 30 year tips that I own, it is making it harder for me to buy new ones. I am targeting a real yield of at least 0.52% (1 bp a week!). Hopefully yields will go back up by the next auction (May) otherwise I may be forced to sit on my hands...

cheers,
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Re: 30 year bond prices up 2-3% today!!

Postby Grt2bOutdoors » Fri Apr 05, 2013 3:33 pm

Really???? How can this be? Where are the naysayers that bonds have no where to go other than to fall dramatically in price?
Pray tell, I can think of a few posters on here who were warning about armageddon of the bond market. :twisted:
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Re: 30 year bond prices up 2-3% today!!

Postby richard » Fri Apr 05, 2013 3:33 pm

Amazing what a slow economy, weak employment report and inadequate supply can do to bond prices. I don't see any special Fed buying.

What's your alternative?
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Re: 30 year bond prices up 2-3% today!!

Postby Scooter57 » Fri Apr 05, 2013 3:48 pm

If the price can drop that steeply on one day's news they can rise just as steeply when unexpectedly positive news hits the headlines.

The concerns about bond prices aren't a short term issue. This drop in price in response to a surprisingly bad jobs report is just as "significant" as the S&P surpassing its previous high. If that news didn't make you want to rush out and buy more stock, this news shouldn't make you feel that long bonds are a safe investment.

Bond prices right now are in the same kind of state as stocks were in 1998 when PEs hit levels that were more than twice as high as normal. Yes, it is possible they might continue up for a while (and they did) but it is highly unlikely they will stay there.If you draw a bell curve for bond prices over the last 150 years you will find today's prices way out on the right hand tail.

The only way that the bond market will stay in its current range is if unemployment remains in a severely depressed state. This would mean that an entire generation of younger Americans would spend the their most productive years under or unemployed and that people now in their late '50s and '60s would face layoffs at the same time that it hits them that their savings don't give them any extra padding for their retirement. A nasty scenario and one we must all hope does not occur. Flat bond prices mean a stagnant economy full of unemployed would-be workers.

So I wouldn't go applauding low bond prices just yet.
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Re: 30 year bond prices up 2-3% today!!

Postby YDNAL » Fri Apr 05, 2013 3:57 pm

Scooter57 wrote:If the price can drop that steeply on one day's news they can rise just as steeply when unexpectedly positive news hits the headlines.

The concerns about bond prices aren't a short term issue. This drop in price in response to a surprisingly bad jobs report is just as "significant" as the S&P surpassing its previous high. If that news didn't make you want to rush out and buy more stock, this news shouldn't make you feel that long bonds are a safe investment.

(my emphasis)

Scooter, price is UP ↑
Reuters (link) wrote:The price of the 30-year Treasury bond extended an early gain to more than two points, pushing its yield down to 2.85 percent from 2.99 percent late on Thursday.
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Re: 30 year bond prices up 2-3% today!!

Postby Scooter57 » Fri Apr 05, 2013 5:00 pm

Yes, I realize that and meant to write yield. But the point is the same. What goes up that fast comes down that fast.
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Re: 30 year bond prices up 2-3% today!!

Postby greg24 » Fri Apr 05, 2013 5:13 pm

The market can stay irrational for a loooooooooooooong time.
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Re: 30 year bond prices up 2-3% today!!

Postby Scooter57 » Fri Apr 05, 2013 5:21 pm

It can, but I'm patient and I don't risk capital for a 10 year 1.72 yield. If I'm wrong, I lose .72% for each year rates stay that low. If I'm right I don't get trapped in that yield for years or lose capital. I like to err on the side of being paid a lot more for the risks I take.
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Re: 30 year bond prices up 2-3% today!!

Postby EDN » Fri Apr 05, 2013 5:49 pm

I have no idea if or when it will happen, but if rates do start heading higher, mark my words: this board will be littered with posts about bond armageddon and how no one knew that bonds could lose so much when rates rose. The "3 Fund Portfolio" will turn into TSM, TISM, and ST Bond Index.

The vast majority of bond investors are playing musical chairs and believe they can find a seat before the music stops (rates rise). Maybe the record never ends, but if it does, you will see panic at the same level you did with equities in 2008 (the losses won't be as bad expect the longest of maturities if rates do head higher), but it will have an even worse psychological effect as everyone equates bonds with low risk. Losing double digits will not go over well.

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Re: 30 year bond prices up 2-3% today!!

Postby Falco » Fri Apr 05, 2013 6:18 pm

All the more reason to pick your diversified portfolio and stick to it, regardless. We can look at all sorts of timeframes and scenarios, policy, what happens when rates rise or drop etc. and think we know, but we dont.

:beer
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Re: 30 year bond prices up 2-3% today!!

Postby tacster » Fri Apr 05, 2013 6:35 pm

Falco wrote:All the more reason to pick your diversified portfolio and stick to it, regardless. We can look at all sorts of timeframes and scenarios, policy, what happens when rates rise or drop etc. and think we know, but we dont.

:beer

+1 to that (especially the beer!)
INSERT PITHY QUOTE HERE
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Re: 30 year bond prices up 2-3% today!!

Postby foxfirev5 » Fri Apr 05, 2013 6:38 pm

tacster wrote:
Falco wrote:All the more reason to pick your diversified portfolio and stick to it, regardless. We can look at all sorts of timeframes and scenarios, policy, what happens when rates rise or drop etc. and think we know, but we dont.

:beer

+1 to that (especially the beer!)


Pick your AA and stick to it, by all means. It also allows for a few brews on Friday afternoon without fear of stupid investment moves. :sharebeer
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Re: 30 year bond prices up 2-3% today!!

Postby rr2 » Fri Apr 05, 2013 11:37 pm

One useful thing with looking at 30 year bond prices is that they are often correlated with 10 year bonds. These in turn are connected to mortgage rates. So if you are getting a mortgage or refinancing today would have been a good day to lock interest rates.
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Re: 30 year bond prices up 2-3% today!!

Postby Call_Me_Op » Sat Apr 06, 2013 11:09 am

Surprise - volatile investments go up and down - sometimes significantly.
Best regards, -Op

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Re: 30 year bond prices up 2-3% today!!

Postby linenfort » Sat Apr 06, 2013 11:43 am

30 year bond prices up 2-3% today!!

And I own a ton of them. I can't gloat because
(1) They're simply a part of the permanent portfolio strategy, and
(2) For the same reason above I won't have to hang my head in shame when they finally get decimated and I'm still holding them. :-)
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Re: 30 year bond prices up 2-3% today!!

Postby grayfox » Sat Apr 06, 2013 11:55 am

Well, yesterday was a good day to sell LT bonds, so I sold off the last of my LT Bonds yesterday. Now I only have IT and ST.

All the LT bond funds went up substantially, offsetting any fall in stock prices.

VCLT +1.45%
VWESX +1.49%
BLV + 1.56%
VGKT +1.71%
VUSTX +1.78%
TLT +2.04%
EDV + 3.23%

meanwhile total bond market funds barely went up

BND +0.27%
VBMFX +0.27

This is another example showing how LT bonds are good diversifiers for stocks. IT, ST and TBM, not so much.

Gold, another good diversifier for stocks, also went up.
IAU +1.66%
GLD +1.68%
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Re: 30 year bond prices up 2-3% today!!

Postby Falco » Sat Apr 06, 2013 12:16 pm

rr2 wrote:One useful thing with looking at 30 year bond prices is that they are often correlated with 10 year bonds. These in turn are connected to mortgage rates. So if you are getting a mortgage or refinancing today would have been a good day to lock interest rates.


10 year is not connected to mortgage rates. Many believe this as for a long time people didn't feel there was additional risk with MB's. A much better indicator would be mtgefncl, the fnma 30.

Also, lenders will adjust rates based on volume constraints. Combine these and you often see mortgage rates not changing or changing inverse to the 10y.

That said, mortgage rates are ridiculously low! :mrgreen:
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Re: 30 year bond prices up 2-3% today!!

Postby rallycobra » Sat Apr 06, 2013 1:01 pm

EDN wrote:I have no idea if or when it will happen, but if rates do start heading higher, mark my words: this board will be littered with posts about bond armageddon and how no one knew that bonds could lose so much when rates rose. The "3 Fund Portfolio" will turn into TSM, TISM, and ST Bond Index.

Eric


Good, I'm ahead of the curve. That is my 3 fund portfolio now ;)
I better change my sig!
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Re: 30 year bond prices up 2-3% today!!

Postby Carl53 » Sat Apr 06, 2013 1:03 pm

Could no longer justify holding onto our 2/2041 TIPS. Up 3% for the day, 6% for the week and about 64% since purchase including reinvested interest paid. They were briefly within 1% of their peak value on 12/10/12 when we wanted to sell but were in the midst of shuffling accounts and missed out. Glad to have another opportunity to sell at a good price.
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Re: 30 year bond prices up 2-3% today!!

Postby rallycobra » Sat Apr 06, 2013 1:03 pm

EDN wrote:I have no idea if or when it will happen, but if rates do start heading higher, mark my words: this board will be littered with posts about bond armageddon and how no one knew that bonds could lose so much when rates rose. The "3 Fund Portfolio" will turn into TSM, TISM, and ST Bond Index.

Eric


Good, I'm ahead of the curve. That is my 3 fund portfolio now ;)
I better change my sig!
22% VTSMX/ 16% VFWIX/ 16% VFSVX/ 11% VISVX/ 15% VIPSX/ 15% VFSTX/ 5% VGSIX=
70/30 stock-bond 50/50 US-Intl 2/1 TSM-SCV 5% REIT
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Re: 30 year bond prices up 2-3% today!!

Postby Doc » Sat Apr 06, 2013 1:36 pm

:?:

I am very curious as to what people are buying with the proceeds from all those long bonds they are selling.

After all this is fixed income and you can't increase your return for the duration unless you take on more risk.
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Re: 30 year bond prices up 2-3% today!!

Postby dbr » Sat Apr 06, 2013 1:38 pm

Doc wrote::?:

I am very curious as to what people are buying with the proceeds from all those long bonds they are selling.

After all this is fixed income and you can't increase your return for the duration unless you take on more risk.


Considering the recent history of stock increases, anyone with a rebalancing plan should still be closer to selling stocks buying bonds than vice versa. Something here makes no sense.
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Re: 30 year bond prices up 2-3% today!!

Postby rr2 » Sat Apr 06, 2013 1:43 pm

Falco wrote:
rr2 wrote:One useful thing with looking at 30 year bond prices is that they are often correlated with 10 year bonds. These in turn are connected to mortgage rates. So if you are getting a mortgage or refinancing today would have been a good day to lock interest rates.


10 year is not connected to mortgage rates. Many believe this as for a long time people didn't feel there was additional risk with MB's. A much better indicator would be mtgefncl, the fnma 30.

Also, lenders will adjust rates based on volume constraints. Combine these and you often see mortgage rates not changing or changing inverse to the 10y.

That said, mortgage rates are ridiculously low! :mrgreen:

I should have used the words "loosely correlated" instead of connected. I agree that the fnma30 is the more appropriate thing to look at. On my iPhone stock app, it is much easier to put in TLT to track. Usually I find that when TLT goes higher, mortgage rates drop.
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Re: 30 year bond prices up 2-3% today!!

Postby Doc » Sat Apr 06, 2013 1:43 pm

dbr wrote:
Doc wrote::?:

I am very curious as to what people are buying with the proceeds from all those long bonds they are selling.

After all this is fixed income and you can't increase your return for the duration unless you take on more risk.


Considering the recent history of stock increases, anyone with a rebalancing plan should still be closer to selling stocks buying bonds than vice versa. Something here makes no sense.


Yep!
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Re: 30 year bond prices up 2-3% today!!

Postby Rob5TCP » Sat Apr 06, 2013 4:16 pm

Doc wrote:
dbr wrote:
Doc wrote::?:

I am very curious as to what people are buying with the proceeds from all those long bonds they are selling.

After all this is fixed income and you can't increase your return for the duration unless you take on more risk.


Considering the recent history of stock increases, anyone with a rebalancing plan should still be closer to selling stocks buying bonds than vice versa. Something here makes no sense.


Yep!


I have been putting my proceeds into CD's with a 5 year or longer duration but with a light penalty for early withdrawal.
Not thrilling, but I still find it better than buying shorter term bonds.
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Re: 30 year bond prices up 2-3% today!!

Postby grayfox » Sat Apr 06, 2013 4:18 pm

Doc wrote::?:

I am very curious as to what people are buying with the proceeds from all those long bonds they are selling.

After all this is fixed income and you can't increase your return for the duration unless you take on more risk.


For the most part, I have been selling risky assets, both stocks and LT bonds, and buying short-term CDs and Treasuries. They are only yielding 0 to 0.3%. But I've made a ton in the past few years, up about about 48% the past four years. That is like 15 or 20 years of withdrawals. Why risk it?

It seems like a good time to sell is when things are high.
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Re: 30 year bond prices up 2-3% today!!

Postby grok87 » Sat Apr 06, 2013 6:42 pm

Rob5TCP wrote:
Doc wrote:
dbr wrote:
Doc wrote::?:

I am very curious as to what people are buying with the proceeds from all those long bonds they are selling.

After all this is fixed income and you can't increase your return for the duration unless you take on more risk.


Considering the recent history of stock increases, anyone with a rebalancing plan should still be closer to selling stocks buying bonds than vice versa. Something here makes no sense.


Yep!


I have been putting my proceeds into CD's with a 5 year or longer duration but with a light penalty for early withdrawal.
Not thrilling, but I still find it better than buying shorter term bonds.

agree. that is smart. the other fixed income investments i like are:

ibonds
fdic insured savings accounts with yields of say 0.5%-1%
Federal Thrift Savings Plan G Fund

cheers,
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Re: 30 year bond prices up 2-3% today!!

Postby john94549 » Sat Apr 06, 2013 6:48 pm

As they say, sit on your hands, and wriggle your thumbs.

Where those thumbs might be, up to you.
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Re: 30 year bond prices up 2-3% today!!

Postby Rob5TCP » Sun Apr 07, 2013 8:00 am

grok87 wrote:
Rob5TCP wrote:
Doc wrote:
dbr wrote:
Doc wrote::?:

I am very curious as to what people are buying with the proceeds from all those long bonds they are selling.

After all this is fixed income and you can't increase your return for the duration unless you take on more risk.


Considering the recent history of stock increases, anyone with a rebalancing plan should still be closer to selling stocks buying bonds than vice versa. Something here makes no sense.


Yep!


I have been putting my proceeds into CD's with a 5 year or longer duration but with a light penalty for early withdrawal.
Not thrilling, but I still find it better than buying shorter term bonds.

agree. that is smart. the other fixed income investments i like are:

ibonds
fdic insured savings accounts with yields of say 0.5%-1%
Federal Thrift Savings Plan G Fund

cheers,


Would love to buy I Bonds - 95%+ of what I have is in Roth and SEP.
So IBonds are not on the table (though I have many that pay 1.2-3.6%
thanks to Bogleheads and Andrew Tobias)
So, it's mostly equities and CD's now.
At least I get about 1.6% for new CD's with a small penalty from Ally (free plug)

Though for some strange reason, this week is the first time in many many
months that I remember them raising interest rates (though the increase was small).
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Re: 30 year bond prices up 2-3% today!!

Postby Hexdump » Sun Apr 07, 2013 10:22 am

grayfox wrote:For the most part, I have been selling risky assets, both stocks and LT bonds, and buying short-term CDs and Treasuries. They are only yielding 0 to 0.3%. But I've made a ton in the past few years, up about about 48% the past four years. That is like 15 or 20 years of withdrawals. Why risk it?

It seems like a good time to sell is when things are high.


Grayfox, can you explain how you made a ton by investing in instruments that yield 0 to 0.3% ?
Or is the "ton" relative ?

Not being argumentative, I only want to educate myself.

thanks
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Re: 30 year bond prices up 2-3% today!!

Postby livesoft » Sun Apr 07, 2013 10:32 am

^I think grayfox made a ton in investments (i.e. stocks and LT bonds) and did not want to lose those gains by leaving his money in those investments. So he sold his risky assets and bought fixed income funds paying 0% to 0.3%.


grayfox wrote:For the most part, I have been selling risky assets, both stocks and LT bonds, ....
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: 30 year bond prices up 2-3% today!!

Postby Hexdump » Sun Apr 07, 2013 11:20 am

livesoft wrote:^I think grayfox made a ton in investments (i.e. stocks and LT bonds) and did not want to lose those gains by leaving his money in those investments. So he sold his risky assets and bought fixed income funds paying 0% to 0.3%.


grayfox wrote:For the most part, I have been selling risky assets, both stocks and LT bonds, ....


Ah, that makes sense.
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Re: 30 year bond prices up 2-3% today!!

Postby Scooter57 » Sun Apr 07, 2013 11:25 am

Hexdump,

Re your username and icon: does anyone still read hexdumps in this day and age? I used to, for a living, in the early and mid-1980s. Even then it was becoming a lost art.
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Re: 30 year bond prices up 2-3% today!!

Postby Hexdump » Sun Apr 07, 2013 12:19 pm

Scooter57 wrote:Hexdump,

Re your username and icon: does anyone still read hexdumps in this day and age? I used to, for a living, in the early and mid-1980s. Even then it was becoming a lost art.


Lol, Scooter.
I still do it once in a great while just to impress my java and c++ enabled, son.
I love the 404040404040s

I got the monicker because, when I was slinging code, every time my testing resulted in an exception (very often), the printer would spew out reams and reams of hexdumps.

Now we return to your previous broadcasting.
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Re: 30 year bond prices up 2-3% today!!

Postby grayfox » Sun Apr 07, 2013 12:35 pm

Yep, stocks and LT bonds. Most LT bonds. A few years ago Vanguard LT Corporate (VWETX) had yield-to-maturity of 6+%. I would settle for 6% minus 2.5% inflation, so I invested a lot in that.

It turned out, VWETX returned about the same as Vanguard Total Stock Market (VTSMX) with less volatility. According to Vanguard, 3-year annual return was 12.45% p.a. $10k grew to $14,822, up +48%.
See this chart from M*:

VWETX vs VTSMX

But think about it. The YTM was 6% but it returned 12%. So half of the gains were capital return.

Year Capital Income Total
2009 02.29 6.60 08.89
2010 04.71 6.14 10.85
2011 11.06 6.24 17.30
2012 06.58 5.19 11.77

That worked out pretty well. Expected 6% p.a., got 12%. But that gravy train can't last forever. Now the YTM is down to 4.4%. 4.4 - 2.5 = 1.9 real. Not enough for the level of risk. Most of the bonds are trading at huge premiums, like 130 or 140. Eventually they have to come down to 100. It's the way bonds work. At some point there will be negatives in the capital return column, offset by only a 4% income.

So move from investment-grade corporate bonds with 24-year average maturity and YTM = 4.4%
to a 5-year ladder of CDs and Treasuries with overall YTM 0.38%.
Тише едешь, дальше будешь. (Quieter you-go, further you-will-be.)
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Re: 30 year bond prices up 2-3% today!!

Postby fidelio » Mon Apr 08, 2013 4:41 am

i guess the "Federal Thrift Savings Plan G Fund" is like a stable value fund run by the fed. employee retirement system?
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Re: 30 year bond prices up 2-3% today!!

Postby Default User BR » Mon Apr 08, 2013 3:53 pm

fidelio wrote:i guess the "Federal Thrift Savings Plan G Fund" is like a stable value fund run by the fed. employee retirement system?

Yes, and backed by full faith and credit of the USA. So somewhat better insurance than corporate plans, although traditionally more conservative.


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Re: 30 year bond prices up 2-3% today!!

Postby Scooter57 » Wed Apr 10, 2013 5:19 pm

30 year bond prices are down 2.38% today. Short term rates are down 5.71% today.

Which illustrates what a silly point this thread made when first posted.
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Re: 30 year bond prices up 2-3% today!!

Postby grok87 » Wed Apr 10, 2013 7:07 pm

Scooter57 wrote:30 year bond prices are down 2.38% today. Short term rates are down 5.71% today.

Which illustrates what a silly point this thread made when first posted.

thanks- that's exciting news. Fidelity is showing the 30 year tips bid/ask spread at 0.534/0.555 so i actually have a shot now at being able to buy at've the next auction in May (i've decided i require a minimum real yield of 0.52% or 1 bp a week!)
cheers,
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Re: 30 year bond prices up 2-3% today!!

Postby Doc » Wed Apr 10, 2013 8:05 pm

grok87 wrote: Fidelity is showing the 30 year tips bid/ask spread at 0.534/0.555 so i actually have a shot now at being able to buy at've the next auction in May (i've decided i require a minimum real yield of 0.52% or 1 bp a week!)
cheers,



Me too but I don't get your math. 1bp x 52wks x 30yrs = 15.6% real :P

When I first started my TIPS ladder I used 2.5% real as the cut off between going with a five or all the way out to a ten. :( In this market, short nominals give me all the inflation protection I can afford.
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