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Bonds have rallied since rate rises in last few months

Posted: Fri Feb 08, 2019 9:50 pm
by sambb
Bonds (at least munis) have done well since rate rises were announced in the last several months, and with many people on this board saying to not invest in long term bonds. Seems that market timing doesnt work well in the bond market. Or is it time to get out of LT bonds?

Re: Bonds have rallied since rate rises in last few months

Posted: Fri Feb 08, 2019 10:12 pm
by bluquark
It’s because the Fed recently announced they would examine market conditions more closely before raising rates again this year.

Re: Bonds have rallied since rate rises in last few months

Posted: Fri Feb 08, 2019 10:14 pm
by willthrill81
bluquark wrote:
Fri Feb 08, 2019 10:12 pm
It’s because the Fed recently announced they would examine market conditions more closely before raising rates again this year.
Right. The bond market is now less confident of future rate increases, which makes existing bonds more valuable than before.

Re: Bonds have rallied since rate rises in last few months

Posted: Sat Feb 09, 2019 2:46 pm
by 2015
A review of history shows that market timing doesn't work in investing at all. At least not long term. Only gamblers should place their bets.

Re: Bonds have rallied since rate rises in last few months

Posted: Sat Feb 09, 2019 4:50 pm
by suemarkp
I haven't done the math, but it is easy to move funds. What would have been better if you had money to invest in bonds a year ago:

A. Put it all in intermediate or long bonds and watch the value drop. Although now it will start to recover and begin to make up those losses.
B. Put it in ultra short or the prime money market and now move more than you started with to long/intermediate term bonds since the fed announced in December it wasn't planning on raising rates for a while.

If I wanted to invest in bonds today, I would consider intermediate and long term bonds based on the last round of comments from the Fed. A year ago, I would not unless I was planning on holding them a very long time. If the Fed comes out again in 3 or 6 months and says they are raising rates again, then I'd put new money in ultra shorts and consider moving existing longs to ultra short (would depend on how long I plan to leave them invested -- if 10+ years, I'd keep them in long).

Stocks are a wild card as far as what is going where so timing is impossible. At least the bond market is slower and the Fed provides monthly guidance. Although a black swan can occur at any time, it seems to me that market timing in the bond market can provide advantage much of the time.

Re: Bonds have rallied since rate rises in last few months

Posted: Sat Feb 09, 2019 5:48 pm
by bluquark
suemarkp wrote:
Sat Feb 09, 2019 4:50 pm
If I wanted to invest in bonds today, I would consider intermediate and long term bonds based on the last round of comments from the Fed. A year ago, I would not unless I was planning on holding them a very long time.
A year ago, you would've been totally wrong since intermediate and long bonds have been one of the best performing asset class until now. My bonds are showing a nice capital gain and everything else is down. That's OP's whole point in starting this thread.

Re: Bonds have rallied since rate rises in last few months

Posted: Sat Feb 09, 2019 8:03 pm
by patrick013
sambb wrote:
Fri Feb 08, 2019 9:50 pm
Bonds (at least munis) have done well since rate rises were announced in the last several months, and with many people on this board saying to not invest in long term bonds. Seems that market timing doesnt work well in the bond market. Or is it time to get out of LT bonds?
It's not really market timing but more Fed watching. Rates may have gone down due to the flight to quality thing. I would suspect all AAA bonds to have price rises then eventually, not just TRSY's. The market in control would think that bonds are worth more than equities today. The market also would think that a major crash is probable. Otherwise stocks would see normal returns and bonds would have more average spreads to short term.

So conflicts persist. I had some dry powder to put into some Wells Fargo 5 year CD's when 4% was available. Thru some Fed watching that looked OK. Rates may still rise next year who knows ? Money is going into bonds reflecting weakness in stocks. More demand higher prices. Low interest rates never bring alot of smiles.

Re: Bonds have rallied since rate rises in last few months

Posted: Sat Feb 09, 2019 8:14 pm
by pdavi21
You have to look at the rates that rose. Those bonds got hammered. The rates that fell because the fed is not manipulating them saw bond values rise.

Of course forecasts for future activity play their part, but will also affect current yields.

Re: Bonds have rallied since rate rises in last few months

Posted: Sat Feb 09, 2019 8:59 pm
by sambb
its interesting that BH justify bond market timing in all sorts of ways by calling it not timing

Re: Bonds have rallied since rate rises in last few months

Posted: Sat Feb 09, 2019 9:10 pm
by pdavi21
sambb wrote:
Sat Feb 09, 2019 8:59 pm
its interesting that BH justify bond market timing in all sorts of ways by calling it not timing
Most that say avoid long term bonds are not "timing". They are very smart. They say that duration risk on a 30 year treasury is not worth earning 3.06% instead of VMMXX 2.51% with near zero duration risk. Unfortunately, they are can be dumb, because they forget that the 2.51% yield on VMMXX is more volatile (having risen from 0 recently). If interest rates fall, they now have to pay more to yield 2.75% on the 30 year treasury as VMMXX earns zero again (very hypothetical situation). If interest rates have a secular increase, they have to time their transition back into longer term bonds.

In summary, the bond market is far more complicated than you can imagine. Duration risk not adequately being rewarded is true today, but that fact will require market timing to capitalize on. Those with low tolerance for risk should not chase yields via duration or credit risk, while those with higher risk tolerance may.

Re: Bonds have rallied since rate rises in last few months

Posted: Sat Feb 09, 2019 9:14 pm
by Trader Joe
sambb wrote:
Fri Feb 08, 2019 9:50 pm
Bonds (at least munis) have done well since rate rises were announced in the last several months, and with many people on this board saying to not invest in long term bonds. Seems that market timing doesnt work well in the bond market. Or is it time to get out of LT bonds?
I would never invest in long-term bonds.

Re: Bonds have rallied since rate rises in last few months

Posted: Sat Feb 09, 2019 9:14 pm
by cdu7
It’s very easy to fall prey to your own mini versions of market timing, and even many in this forum (myself included) ultimately can’t resist on occasion. That said staying the course is the right decision in 95% of situations. Save yourself the headache, set it and forget it.

Re: Bonds have rallied since rate rises in last few months

Posted: Sun Feb 10, 2019 3:34 pm
by suemarkp
bluquark wrote:
Sat Feb 09, 2019 5:48 pm
suemarkp wrote:
Sat Feb 09, 2019 4:50 pm
If I wanted to invest in bonds today, I would consider intermediate and long term bonds based on the last round of comments from the Fed. A year ago, I would not unless I was planning on holding them a very long time.
A year ago, you would've been totally wrong since intermediate and long bonds have been one of the best performing asset class until now. My bonds are showing a nice capital gain and everything else is down. That's OP's whole point in starting this thread.
How were they doing in NOvember 2018? VBTLX, from January 2018 to November 2018, had NAV losses close to its yield. So its return was 0% for 10 months. The rise up in its NAV took 2 months (Nov 18 - Dec 2018). Lots of clues in that time period to move from short bonds or money market to long. However, even now, VBTLX NAV has not reached its value in January of 2018 ($10.69).

Re: Bonds have rallied since rate rises in last few months

Posted: Sun Feb 10, 2019 5:03 pm
by arcticpineapplecorp.
sambb wrote:
Fri Feb 08, 2019 9:50 pm
Bonds (at least munis) have done well since rate rises were announced in the last several months, and with many people on this board saying to not invest in long term bonds. Seems that market timing doesnt work well in the bond market. Or is it time to get out of LT bonds?
you should read this to see why bogleheads generally don't recommend long term bonds:

viewtopic.php?t=241432

nothing to do with market timing. That's a mis-characterization. Instead the bogleheads have a well thought out philosophy based upon evidence as to why long term bonds are not recommended, but short or intermediate are. If long term bonds have higher yields, why do you suppose that is? Because of the higher risk. The old risk/reward relationship, always at play. You take your risk on the stock side of the portfolio, not the bond side.