Has the bond bubble finally arrived? If so, is anyone doing anything about it?

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Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by fredflinstone » Mon Sep 02, 2019 10:29 pm

I fear we're in a bond bubble. The current yield on the U.S. 30-year treasury -- 1.96 percent nominal -- is very low compared to historical yields and is not much higher than zero in real (inflation-adjusted) terms. I don't advise that anyone make dramatic changes to their portfolio based on short-term fluctuations in asset values. But if bonds are supposed to be the safe part of one's portfolio, shifting a portion of assets from long- or even intermediate-term bonds to shorter-duration ones seems prudent at this time. I have done so and will continue to do so if yields continue to drop.

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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by Small Savanna » Mon Sep 02, 2019 10:40 pm

You'll probably get a lot of responses about not trying to time the market, but I share your concern. I'm pleasantly surprised that the bond part of my portfolio has gone up over the last few months, but that also tells me it could just as easily go down. I'd be interested in hearing from some bond experts on general philosophy - how to determine the right balance between short, intermediate, and long, and how that changes depending on your retirement time horizon.

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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by nedsaid » Mon Sep 02, 2019 11:05 pm

During the 2008-2009 financial crisis, Investment Grade Corporate Bonds and TIPS, fell 10% to 12%. Fortunately the drop was temporary and bonds smartly recovered. Nominal Treasuries actually rallied during the worst of the crisis. Taking a cue from the crisis, Quality and Liquidity both mattered. Your safe harbor in the storm would be US Treasuries. If you were worried about a bond bubble, you would want to be in shorter term US Treasuries.

Back to my first point, a 10% to 12% drop, while not a catastrophe was certainly unnerving. Corporate Bonds and TIPS at least were not equities, which dropped over 50% and had a longer recovery time. Some bonds fell, but not nearly as hard as stocks. Nominal Treasuries and certain US Agency Bonds like GNMAs, sailed right through the crisis. So I would put this talk of a bond bubble in perspective.

The thing to really be worried about would be an unexpected surge in inflation. The ultimate nightmare would be a scenario of the 1970's Stagflation. For this you want a good helping of TIPS for your bond portfolio. Right now, inflation doesn't seem to be a problem.

As far as me, I will be doing nothing for now. I will just continue to reinvest the dividends from my bond funds. Bigger things that concern me right now other than a bond bubble.
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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by cali » Tue Sep 03, 2019 12:44 am

I haven't kept on my portfolio and pretty much just have a small amt of muni bond fund. Im told it is too late to buy any bonds or treasuries at this point and I should have done that 6 mos or more ago. Unfortunately, due to health, I wasn't keeping up with my investments though it has done well except I am an high risk with stocks and nervous I should have been following the 3 fund way but new to this method and did not get around to it.

with retirement 5 yrs away, i am wondering at this point what to do. Half of my investments is in a taxable acct. and the rest IRA.

You mention short term US Treasures would be okay to purchase now? Would that be a fund? I just avoided treasures and bonds since I didn't really understand and family always advised different (they have done well without it). A friend mentioned gold but then I heard that was not a good time now.

any suggestions… besides cash? I just plan to take some profits…..

thanks…researching my options and just thought Id post here for some ideas.

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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by Tyler Aspect » Tue Sep 03, 2019 1:04 am

If the bond yield drops, then you have an improving bond price, but deteriorating bond yield. On the other hand if the bond yield climbs, then you have an deteriorating bond price, but improving bond yield. The current low yield situation is of course not good for long term return potential, but enjoy the good bond pricing in the meantime.
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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by rossington » Tue Sep 03, 2019 4:03 am

What is your reasoning for calling the current market a bond "bubble"?
Why do you think the bond market could collapse?
You seem to be equating bond and equity behavior as the same.
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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by Dude2 » Tue Sep 03, 2019 4:56 am

Sure, I can see somebody thinking there was some funny business with bonds. Maybe it is an inverted yield curve. Maybe that might mean something or not. It is certainly a very flat yield curve. Just when everyone would think interest rates have nowhere to go but up, they tentatively rise, only to drop down again. Our partners in Europe have even weirder bond behavior. The concept of placing your money into negatively yielding instruments to protect it is bonkers.

I read on this forum how complex quantitative easing is. It seems like by adjusting the money supply, not by printing more money or issuing more bonds, but by other methods, they are able to play some games that essentially change the value of money without causing inflation. Of course, we need a reference frame to make any sense of that. There is more under the surface with bonds, it seems, things in which the effects may not even be realized for many years. I worry that "on paper" I may see a very meager gain from bonds, but in real terms I might lose money on them. You can say, ok, but TIPS will protect you -- not if there is no inflation, but money value decreases.

Folks say that bonds are overly bought because of a concern for safety. If the engine of the economy doesn't run on bonds, then something has got to give.

In conclusion, pass me my tin hat, but, yes, I think that bonds could have a six-sigma event hidden inside them. I hope the market is pricing it in.

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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by fredflinstone » Tue Sep 03, 2019 6:21 am

Dude2 wrote:
Tue Sep 03, 2019 4:56 am
In conclusion, pass me my tin hat, but, yes, I think that bonds could have a six-sigma event hidden inside them. I hope the market is pricing it in.
With long-term nominal rates below 2 percent, one could be forgiven for thinking that six-sigma events (or, for that matter, even two- and three-sigma events) have not been correctly priced in. Essentially the bond market is telling us that the U.S. political and economic systems will continue to function seamlessly for as far as the eye can see. Something doesn't add up here.

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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by nisiprius » Tue Sep 03, 2019 6:22 am

Eh, I think there is probably an exaggerated price excursion driven by market psychology. What would I know? I don't work on Wall Street. But, sure, could be, why not, probably is. But, no, I'm not doing anything about it. For three reasons. 1) I try to stay the course. 2) I think there's probably a recession coming, too, but I'm not acting on that hunch, either. I think the climate is changing but I'm not moving north to Canada, etc. 3) The market might know more than me, anyway.

Here's a price chart for the Fidelity Investment Grade Bond Fund, 1971-present. Sure, I see that thing at the right end. It doesn't look all that exceptional.

Image

How much is it up? Where do we measure from? Bottom to top, $7.60 on 10/31/2018 to $8.26 on $8.26 on 8/30/2019 = +8.83%, call it +9%. But, honestly, it was starting from a bit of a dip. If we judge by eyeball that it's been swinging up and down around $7.80 or so since 2011, then the "bubble" component is only +6%.

If the concern is ego and personal competition, someone might score a psychological victory over me by selling now and watching me lose 6-9% when the "bubble" bursts and it falls back down. But that's not going to ruin my retirement. I can easily imagine looking my wife in the eye and saying "I feel awful, due to my failure to realize that we were in a bond bubble, we've lost 5% overall in our retirement account" and have her say "Whatever, but I just wish you'd try harder to put your dirty dishes into the dishwasher instead of leaving them in the sink."

More to the point, the size of this "bubble" is small. It's small compared with the size of stock price movements (orange line is a "typical" stock fund, MITTX; no index fund goes back to 1971). For rough purposes, it's reasonable to say "the price per share of a bond fund just doesn't change at all, I'll ignore it," while the price per share of a stock fund can't possibly be ignored because it represents something like 2/3rds of the total return.

Image

But it is not only fairly small compared with stocks, it is fairly small compared with itself--that is, compared with the steady earnings from bond interest payments. This shows up on a growth chart if we compare the size of the shorter-term fluctuations to the longer-term growth pattern. Bond fund behavior is a small ragged edge riding on top of large upward growth. Stock fund behavior has much more of a ragged edge relative to its own upward growth.

Image

Now consider this on a human scale, in terms of "how many years of progress could I lose?"

Yes, I might lose 6-9% from a fund that has been averaging 4.68%/year total return over the last ten years. That's two years' return. The odd thing is that because the runup has been so recent, if I lose 6-9%, that only takes me back to October, 2018, so in a way I've only lost one year. Anyway, one or two years.

In contrast, in 2008-2009, the stock market crash wiped out ten years of previous progress.

In other words--whether or not I should act on it or resist it--the "fear factor" that gives me the itch to "do something" is a fifth to a tenth what it is when I think about stocks.
Last edited by nisiprius on Tue Sep 03, 2019 6:37 am, edited 4 times in total.
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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by fredflinstone » Tue Sep 03, 2019 6:29 am

rossington wrote:
Tue Sep 03, 2019 4:03 am
What is your reasoning for calling the current market a bond "bubble"?
Nominal long-term rates are less than 2 percent, which is near the historical low.
rossington wrote:
Tue Sep 03, 2019 4:03 am
Why do you think the bond market could collapse?
I believe that inflation expectations are driven by recency bias. While bond investors in 1981 thought inflation would never drop below double digits, today's bond investors believe that double-digit inflation will never reoccur. I believe that inflation will resume at some point within the next several decades for reasons which I am not allowed to discuss on this Forum. (Discussions of political matters are prohibited.)

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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by fredflinstone » Tue Sep 03, 2019 6:35 am

nisiprius, thoughtful post as always. Nobody makes a better case for staying the course than you. Let me ask you two questions:

1) Hypothetically, is there any bond yield that is so low that you would reconsider investing in bonds? For example, if the nominal yield were negative (as we are seeing abroad), would you continue to "stay the course"?

2) If a short-term bond fund were to have a significantly higher yield than an intermediate bond fund, would you ever consider shifting assets from the latter to the former?

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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by student » Tue Sep 03, 2019 6:36 am

Personally, I never liked bond investments so I hold very little. I use TIAA traditional (a stable value investment) for almost all my fixed income portion of my portfolio.

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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by fredflinstone » Tue Sep 03, 2019 6:43 am

nisiprius wrote:
Tue Sep 03, 2019 6:22 am

Here's a price chart for the Fidelity Investment Grade Bond Fund, 1971-present. Sure, I see that thing at the right end. It doesn't look all that exceptional.

Image
Another way of looking at that chart is to say that the fund has only exceeded 8.00 twice (once in the early 1970s and once in the mid to late 1970s) and in both cases it fell sharply shortly thereafter. The overall decline between the early 1970s and 1981 was severe. I have 60 percent of my assets in bonds and would suffer greatly if a scenario like that were to play out again.

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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by nisiprius » Tue Sep 03, 2019 6:54 am

fredflinstone wrote:
Tue Sep 03, 2019 6:35 am
nisiprius, thoughtful post as always. Nobody makes a better case for staying the course than you. Let me ask you two questions:

1) Hypothetically, is there any bond yield that is so low that you would reconsider investing in bonds? For example, if the nominal yield were negative (as we are seeing abroad), would you continue to "stay the course"?
It would depend entirely on the actual alternatives available to me at the time the situation arose. A negative nominal yield wouldn't necessarily do it, I don't see it as a magic bright-line dividing point, just one point on a continuous scale of more and less sucky.

I've said all along that the case for bond mutual funds versus bank CDs is weak, so, sure, if the SEC yield of Total Bond were -0.5%, and it had lost -1%, total return, every year, several years in a row, and the local bank were offering CDs with 0.5% to 1% APYs over the whole spectrum of terms, I cash it all in and buy CDs.

But I don't think my imagination is up to understanding, let alone preparing for negative interest rates. It's all "cross that bridge when I come to it." To me the main thing negative interest rates prove is that the seemingly knowledgable people can be wrong. If I had a nickel for every time someone said "interest rates can't possibly go much lower because negative rates are impossible..."
2) If a short-term bond fund were to have a significantly higher yield than an intermediate bond fund, would you ever consider shifting assets from the latter to the former?
For over a year, 2006-2007, the Vanguard Prime Money Market Fund was earning something like 5%. At one point I remember that I was in the process of consolidating everything to Vanguard, and for some reason I couldn't move something "in kind," so I ended up with a biggish balance in the money market fund and I remember saying "gosh, it's earning 5%, I don't think I'm going to bother reinvesting it just yet." So, having accidentally shifted from stocks and bonds into a money market fund, I decided to treat that as a market timing opportunity.

You seem to be suggesting a long-term, persistent, "new normal" yield curve inversion? Again, that's a "cross that bridge when I come to it." That's so weird and my knowledge of finance and economics is too limited to begin to understand what could lie underneath it, so I would not only wait until it happened but I would wait until I thought I had some actual understanding of what was going on and why it should be expected to persist.
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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by MikeG62 » Tue Sep 03, 2019 8:08 am

fredflinstone wrote:
Mon Sep 02, 2019 10:29 pm
I fear we're in a bond bubble. The current yield on the U.S. 30-year treasury -- 1.96 percent nominal -- is very low compared to historical yields and is not much higher than zero in real (inflation-adjusted) terms. I don't advise that anyone make dramatic changes to their portfolio based on short-term fluctuations in asset values. But if bonds are supposed to be the safe part of one's portfolio, shifting a portion of assets from long- or even intermediate-term bonds to shorter-duration ones seems prudent at this time. I have done so and will continue to do so if yields continue to drop.
While true, US gov't bond yields are high compared to many other countries. So might our yields converge more toward the rest of the world vs. going back to more normal levels?

Query whether people buying negatively yielding foreign sovereign debt are doing so with the expectation to hold till maturity or to sell as and when rates go even lower? I think it's the latter.
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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by goodenyou » Tue Sep 03, 2019 11:00 am

nisiprius wrote:
For over a year, 2006-2007, the Vanguard Prime Money Market Fund was earning something like 5%. At one point I remember that I was in the process of consolidating everything to Vanguard, and for some reason I couldn't move something "in kind," so I ended up with a biggish balance in the money market fund and I remember saying "gosh, it's earning 5%, I don't think I'm going to bother reinvesting it just yet." So, having accidentally shifted from stocks and bonds into a money market fund, I decided to treat that as a market timing opportunity.
Would you do the same, or do you feel the same way today with Vanguard Prime Money Fund earning around 2%? That is, are the spreads equivalent today between bond funds and PMM as they were in 2006-2007?
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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by EnjoyIt » Tue Sep 03, 2019 11:12 am

cali wrote:
Tue Sep 03, 2019 12:44 am
I haven't kept on my portfolio and pretty much just have a small amt of muni bond fund. Im told it is too late to buy any bonds or treasuries at this point and I should have done that 6 mos or more ago. Unfortunately, due to health, I wasn't keeping up with my investments though it has done well except I am an high risk with stocks and nervous I should have been following the 3 fund way but new to this method and did not get around to it.

with retirement 5 yrs away, i am wondering at this point what to do. Half of my investments is in a taxable acct. and the rest IRA.

You mention short term US Treasures would be okay to purchase now? Would that be a fund? I just avoided treasures and bonds since I didn't really understand and family always advised different (they have done well without it). A friend mentioned gold but then I heard that was not a good time now.

any suggestions… besides cash? I just plan to take some profits…..

thanks…researching my options and just thought Id post here for some ideas.
What is your desired asset allocation? Are you short on bonds? If so, buy bonds. If you are short on equities, buy equities. Don't guess or use your gut, just follow your investment plan and your desired asset allocation. If you don't have an investment plan or a desired asset allocation, then you should probably start there.

Regarding your comment about gold. Many here do not believe gold belongs in a portfolio while others do. Either way, create an investment plan, figure out what your desired asset allocation is, and invest that way. Ignore the noise, don't time the market, and over the long haul of your working years and then retirement you will be OK.

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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by midareff » Tue Sep 03, 2019 11:29 am

12 month CD at Ally at 2.4% looks pretty good for a parking spot.... or 2.2% breakable 11 month. Very tempting to take that profit and go for a higher rate with no prospect of capital loss.

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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by MotoTrojan » Tue Sep 03, 2019 11:30 am

Currently only hold bonds via EDV (long-term strips, higher duration than 20 year treasuries) & TMF (3x 20 year treasuries) and will soon transition to solely EDV. Not too worried, I have a long horizon.

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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by donfairplay » Tue Sep 03, 2019 11:36 am

Why are you getting rid of long-duration and intermediate-duration when yields are dropping, or going negative, or going more negative than before? Long-duration treasuries are worth more by the day in a falling yield environment.

Witness Vanguard Long-term Treasury (VUSTX) vs. Vanguard Short-Term Treasury (VFISX):

Image
(ok so I just wanted to post a graph like nisiprius, but point remains about wanting long-term over short-term when yields are falling or going to a negative effective lower-bound)

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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by goodenyou » Tue Sep 03, 2019 4:15 pm

nisiprius wrote:
Tue Sep 03, 2019 6:54 am
fredflinstone wrote:
Tue Sep 03, 2019 6:35 am
nisiprius, thoughtful post as always. Nobody makes a better case for staying the course than you. Let me ask you two questions:

1) Hypothetically, is there any bond yield that is so low that you would reconsider investing in bonds? For example, if the nominal yield were negative (as we are seeing abroad), would you continue to "stay the course"?
It would depend entirely on the actual alternatives available to me at the time the situation arose. A negative nominal yield wouldn't necessarily do it, I don't see it as a magic bright-line dividing point, just one point on a continuous scale of more and less sucky.

I've said all along that the case for bond mutual funds versus bank CDs is weak, so, sure, if the SEC yield of Total Bond were -0.5%, and it had lost -1%, total return, every year, several years in a row, and the local bank were offering CDs with 0.5% to 1% APYs over the whole spectrum of terms, I cash it all in and buy CDs.

But I don't think my imagination is up to understanding, let alone preparing for negative interest rates. It's all "cross that bridge when I come to it." To me the main thing negative interest rates prove is that the seemingly knowledgable people can be wrong. If I had a nickel for every time someone said "interest rates can't possibly go much lower because negative rates are impossible..."
2) If a short-term bond fund were to have a significantly higher yield than an intermediate bond fund, would you ever consider shifting assets from the latter to the former?
For over a year, 2006-2007, the Vanguard Prime Money Market Fund was earning something like 5%. At one point I remember that I was in the process of consolidating everything to Vanguard, and for some reason I couldn't move something "in kind," so I ended up with a biggish balance in the money market fund and I remember saying "gosh, it's earning 5%, I don't think I'm going to bother reinvesting it just yet." So, having accidentally shifted from stocks and bonds into a money market fund, I decided to treat that as a market timing opportunity.

You seem to be suggesting a long-term, persistent, "new normal" yield curve inversion? Again, that's a "cross that bridge when I come to it." That's so weird and my knowledge of finance and economics is too limited to begin to understand what could lie underneath it, so I would not only wait until it happened but I would wait until I thought I had some actual understanding of what was going on and why it should be expected to persist.
Would you do the same, or do you feel the same way today with Vanguard Prime Money Fund earning around 2%? That is, are the spreads equivalent today between bond funds and PMM as they were in 2006-2007?
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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by fredflinstone » Wed Sep 04, 2019 6:53 am

donfairplay wrote:
Tue Sep 03, 2019 11:36 am
Why are you getting rid of long-duration and intermediate-duration when yields are dropping, or going negative, or going more negative than before? Long-duration treasuries are worth more by the day in a falling yield environment.
I don't understand. Right now, the yield on a 1-year treasury bond is about the same as the yield on a 20-year treasury bond:

https://www.treasury.gov/resource-cente ... data=yield

For many years I was heavily tilted toward long-term bonds. At the moment, I prefer the 1-year bond to the 20-year one, because there is less downside risk. Bonds are supposed to be the safe part of one's portfolio.

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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by SandysDad » Wed Sep 04, 2019 7:50 am

While some bond advocates are cheering how their LT bonds are up so far over past 12 months, those gains are fleeting. Basically it is just getting higher value off an EXISTING bond investment because one locked in a higher rate some time ago. Guessing where interest rates are headed is speculation, not investment. Focus on the yield of the bonds, not the previous gains that came from changes in prevailing yields.

So I just focus on Term, Quality, and Yield. Put some language in your IPS as to what kind of term premium you want for longer term bonds (for me if there is not >1% (ideally 2%) term premium going from 2yr > 10 yr I keep it short term). Same type of thing on quality. If you are not paid an appropriate premium for riskier bonds, don't buy them.

I keep my portfolio allocation the same, but in bonds I DO alter the term and type of bonds I purchase.

Right now for my bonds / cash allocation my tilt is toward CD's as these are providing treasury like risk protection, with higher rates. Very little premium (if any) for good quality Corporate bonds right now.

Others have mentioned Stable Value funds. If you have access to a good one one such as in your 401K, they can be a good part of the mix. In general they held their own in the GFC, so there is a history of them handling risk well, but I would not put all my eggs in them as you are depending on insurance companies being able to honor their counter party risk in a market meltdown.

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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by nisiprius » Wed Sep 04, 2019 8:25 am

goodenyou wrote:
Tue Sep 03, 2019 4:15 pm
...Would you do the same, or do you feel the same way today with Vanguard Prime Money Fund earning around 2%? That is, are the spreads equivalent today between bond funds and PMM as they were in 2006-2007?...
It's an interesting question. I haven't thought about it. The yield curve hasn't been flat for long enough for it to be glaringly obvious. Very likely, by staying the course in Total Bond I am enduring some unnecessary volatility but the idea doesn't bother me enough to prod me into any action.

I love it that many voices are saying "the duration of Total Bond is too long, shorten up" and many are saying "the duration of Total Bond is too short, stretch it out." Makes it easier to shrug and just stay the course.
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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by fredflinstone » Wed Sep 04, 2019 8:49 am

SandysDad wrote:
Wed Sep 04, 2019 7:50 am
Right now for my bonds / cash allocation my tilt is toward CD's as these are providing treasury like risk protection, with higher rates.
I agree. However, keep in mind that FDIC insurance only covers $250,000. Assuming no more than $250,000 per bank, CDs are not practical for people with several million dollars or more in bonds. I am not going to open 12 or 15 bank accounts and deposit $250,000 in each one. It is too much trouble. For smaller investors, CDs are a sweet deal.

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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by SandysDad » Wed Sep 04, 2019 8:56 am

Why not just buy brokered CD's then?

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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by mikemikemike » Wed Sep 04, 2019 9:06 am

I recently switched all my long term treasury holdings to short term ones.

It was nice to profit off the interest rate drops, but I'm ready to take lower interest rate risk, for similar distribution yields (for now, anyway). I accept that this could be costing me some $ if long term rates drop further.

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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by friar1610 » Wed Sep 04, 2019 9:24 am

nisiprius wrote:
Tue Sep 03, 2019 6:22 am


[If the concern is ego and personal competition, someone might score a psychological victory over me by selling now and watching me lose 6-9% when the "bubble" bursts and it falls back down. But that's not going to ruin my retirement. I can easily imagine looking my wife in the eye and saying "I feel awful, due to my failure to realize that we were in a bond bubble, we've lost 5% overall in our retirement account" and have her say "Whatever, but I just wish you'd try harder to put your dirty dishes into the dishwasher instead of leaving them in the sink."
Amazing. Are we married to sisters?
Friar1610

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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by lazyday » Wed Sep 04, 2019 9:59 am

is anyone doing anything about it?
First, I would not increase duration or take a new leveraged bond position today. There's several recent posts on this forum from people excited about long bonds or leveraging bond exposure. Much of that may be performance chasing. Buy high sell low.

Otherwise, I think the reasonable thing to do is to stay the course.

I'm not so reasonable, but am more of a CD person myself, so I haven't done much in response to low yields. I have long wanted a tiny position in extremely long Treasuries, and haven't bought because I felt yield was too low. If I were less of a market timer, I would have added that position shortly after dropping much below 100% equities, and would have been better off.

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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by 3funder » Wed Sep 04, 2019 11:01 am

I have stocks, bonds, and a 30-year time horizon. Fortunately, a bond bubble (or any asset bubble, for that matter) wouldn't be an actionable event.

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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by fredflinstone » Wed Sep 04, 2019 3:19 pm

SandysDad wrote:
Wed Sep 04, 2019 8:56 am
Why not just buy brokered CD's then?
I know nothing about them. I'll look into it.

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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by fredflinstone » Wed Sep 04, 2019 3:20 pm

mikemikemike wrote:
Wed Sep 04, 2019 9:06 am
I recently switched all my long term treasury holdings to short term ones.

It was nice to profit off the interest rate drops, but I'm ready to take lower interest rate risk, for similar distribution yields (for now, anyway). I accept that this could be costing me some $ if long term rates drop further.
Nice to see that someone else is thinking the same way as me. Makes me feel like maybe I'm not crazy.

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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by fredflinstone » Wed Sep 04, 2019 3:21 pm

lazyday wrote:
Wed Sep 04, 2019 9:59 am
is anyone doing anything about it?
First, I would not increase duration or take a new leveraged bond position today. There's several recent posts on this forum from people excited about long bonds or leveraging bond exposure. Much of that may be performance chasing.
Agreed. What other explanation could there be? I mean, where were these people when long-term yields were 3% or higher?

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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by robertmcd » Wed Sep 04, 2019 4:26 pm

fredflinstone wrote:
Wed Sep 04, 2019 3:21 pm
lazyday wrote:
Wed Sep 04, 2019 9:59 am
is anyone doing anything about it?
First, I would not increase duration or take a new leveraged bond position today. There's several recent posts on this forum from people excited about long bonds or leveraging bond exposure. Much of that may be performance chasing.
Agreed. What other explanation could there be? I mean, where were these people when long-term yields were 3% or higher?
A lot of that was going on before yields had their recent drop.

The people you are seeing start new posts since negative rates are all the talk now will probably buy in right now to long term treasuries, only to sell in the next few months after yields have a backup, only to see them fall back to new lows when their stocks drop.

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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by Hector » Wed Sep 04, 2019 4:58 pm

money market fund / brokered cds / individual treasury bills / stable value funds

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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by Ki_poorrichard » Wed Sep 04, 2019 5:00 pm

Alan Greenspan conveys that soon negative interest rates will spread to the U.S. Unbelievable, you pay them to hold on to your money. Utter madness. Seems as if everyone is intentionally being cornered to take on more risk in the stock market.

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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by Hector » Wed Sep 04, 2019 5:05 pm

Ki_poorrichard wrote:
Wed Sep 04, 2019 5:00 pm
Alan Greenspan conveys that soon negative interest rates will spread to the U.S. Unbelievable, you pay them to hold on to your money. Utter madness. Seems as if everyone is intentionally being cornered to take on more risk in the stock market.
For last few years there were multiple posts about interest rate ONLY going up. Now there are multiple posts about negative interest rate. What's your bet?

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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by Ki_poorrichard » Wed Sep 04, 2019 5:09 pm

Hector wrote:
Wed Sep 04, 2019 5:05 pm
Ki_poorrichard wrote:
Wed Sep 04, 2019 5:00 pm
Alan Greenspan conveys that soon negative interest rates will spread to the U.S. Unbelievable, you pay them to hold on to your money. Utter madness. Seems as if everyone is intentionally being cornered to take on more risk in the stock market.
For last few years there were multiple posts about interest rate ONLY going up. Now there are multiple posts about negative interest rate. What's your bet?
Why bet in a casino where the odds are not in your favor?

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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by Hector » Wed Sep 04, 2019 5:12 pm

Ki_poorrichard wrote:
Wed Sep 04, 2019 5:09 pm
Hector wrote:
Wed Sep 04, 2019 5:05 pm
Ki_poorrichard wrote:
Wed Sep 04, 2019 5:00 pm
Alan Greenspan conveys that soon negative interest rates will spread to the U.S. Unbelievable, you pay them to hold on to your money. Utter madness. Seems as if everyone is intentionally being cornered to take on more risk in the stock market.
For last few years there were multiple posts about interest rate ONLY going up. Now there are multiple posts about negative interest rate. What's your bet?
Why bet in a casino where the odds are not in your favor?
True. I do indexing and also buy 10 or so lottery tickets a year.

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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by goodenyou » Wed Sep 04, 2019 5:30 pm

Ki_poorrichard wrote:
Wed Sep 04, 2019 5:00 pm
Alan Greenspan conveys that soon negative interest rates will spread to the U.S. Unbelievable, you pay them to hold on to your money. Utter madness. Seems as if everyone is intentionally being cornered to take on more risk in the stock market.
I will refer you to your own signature quote.
"Ignorance more frequently begets confidence than does knowledge" | "The best years you have left are the ones you have right now"

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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by robertmcd » Wed Sep 04, 2019 5:30 pm

Hector wrote:
Wed Sep 04, 2019 5:05 pm
Ki_poorrichard wrote:
Wed Sep 04, 2019 5:00 pm
Alan Greenspan conveys that soon negative interest rates will spread to the U.S. Unbelievable, you pay them to hold on to your money. Utter madness. Seems as if everyone is intentionally being cornered to take on more risk in the stock market.
For last few years there were multiple posts about interest rate ONLY going up. Now there are multiple posts about negative interest rate. What's your bet?
Holding the proper duration of bonds for your investment horizon and stock allocation. Many bogleheads holding long term bonds before this recent collapse in yields were doing this.

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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by elainet7 » Wed Sep 04, 2019 7:10 pm

think many of my brokerage cds will be called
who would ever imagine rates this low
bought a 5 yr non callable cd at 1.8% recently

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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by stlutz » Wed Sep 04, 2019 9:26 pm

This board makes me think we're in a bubble with threads hoping that there will soon be a 5x levered ETF on 100 year treasury bonds yielding 0%.

If I was going to make a bet, it would be that the 10 year treasury yield will be higher ten years from now than it is now. I don't have a forecast on the path to getting there.

In my own portfolio I make very small duration bets. When rates were going up last year I expanded my portfolio duration from 5 to about 6. I'm currently in the process of letting that drop down to around 5. But not doing anything terribly proactive about it--really just putting new money in shorter term bond fund and letting my individual bond holdings ride without replacing far out rungs in the ladder.

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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by stlutz » Wed Sep 04, 2019 9:31 pm

It is worth noting that the 10 year TIPS yield of -0.03% today is still quite a ways above it's low back in 2012 at -.78%.

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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by cdu7 » Wed Sep 04, 2019 9:38 pm

Oh my god, I'm dumping all my bonds now!

Just kidding, I wouldn't even pay attention to the bond markets. Stay the course.

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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by Hector » Wed Sep 04, 2019 10:11 pm

cdu7 wrote:
Wed Sep 04, 2019 9:38 pm
Oh my god, I'm dumping all my bonds now!

Just kidding, I wouldn't even pay attention to the bond markets. Stay the course.
What is stay the course in terms of bond?

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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by jh » Wed Sep 04, 2019 11:17 pm

fredflinstone,

I don't know if its a bond bubble, but it certainly makes no sense to me to waste money on bonds.

With Vanguard's High Div Yield Idx funds you can get 3.12% on the US stock fund and 4.43% on the foreign fund. Also these pay qualified dividends and will most likely grow around 6%-8% per year, on average.

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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by bearcub » Thu Sep 05, 2019 1:29 am

I let my TIPS Funds reinvest the dividends when time comes. Retired so I"m keeping these funds for better or for worse.

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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by HEDGEFUNDIE » Thu Sep 05, 2019 2:27 am

jh wrote:
Wed Sep 04, 2019 11:17 pm
fredflinstone,

I don't know if its a bond bubble, but it certainly makes no sense to me to waste money on bonds.

With Vanguard's High Div Yield Idx funds you can get 3.12% on the US stock fund and 4.43% on the foreign fund. Also these pay qualified dividends and will most likely grow around 6%-8% per year, on average.
And you would have made even more money with plain ol’ Total Stock Index.

https://www.portfoliovisualizer.com/fun ... mark=VTSAX

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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by rossington » Thu Sep 05, 2019 3:46 am

jh wrote:
Wed Sep 04, 2019 11:17 pm
fredflinstone,

I don't know if its a bond bubble, but it certainly makes no sense to me to waste money on bonds.

With Vanguard's High Div Yield Idx funds you can get 3.12% on the US stock fund and 4.43% on the foreign fund. Also these pay qualified dividends and will most likely grow around 6%-8% per year, on average.
This may be a good point regarding yield comparisons but what if stock valuations tank for an extended period of time?

If no bonds do you have cash as a safety net? Is 3%+ worth the risk of a higher % drop in equities?

That being said, IT or LT investment grade corporate bonds cold be the trade off as their correlation to stock valuations has been reduced with the lower interest rate environment.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.

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