Dalio says bonds have entered a bear market

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visualguy
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Re: Dalio says bonds have entered a bear market

Post by visualguy » Fri Jan 26, 2018 11:24 am

larryslocum1982 wrote:
Thu Jan 25, 2018 10:48 pm
I think there is too much risk in bonds. Yields are not enough for the risk. I just sold my bond funds.
I moved to brokered CD ladders and stable value funds in tax-deferred accounts in 2016. I didn't see the advantage in bond funds that would compensate for the disadvantages. That was an easy decision, but I kept some bond funds (munis) in taxable. Hoping not to regret that...
Last edited by visualguy on Fri Jan 26, 2018 11:29 am, edited 1 time in total.

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Re: Dalio says bonds have entered a bear market

Post by visualguy » Fri Jan 26, 2018 11:28 am

The problem is that with bond funds you may need to hold for almost twice the duration just to get the original principal and interest.
Last edited by visualguy on Fri Jan 26, 2018 11:29 am, edited 1 time in total.

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Re: Dalio says bonds have entered a bear market

Post by Da5id » Fri Jan 26, 2018 11:28 am

Blueskies123 wrote:
Fri Jan 26, 2018 11:08 am
If you working and do not need your portfolio that is fine but if you are retired and living off your portfolio living through a 6 bond bear is not easy. Bonds lost about half their value over 6 years and if you held on or bought more you had a nice bull market. 30 Year Treasury Bond Prices, Monthly (1978 – 2007)
Maybe that is why many of us don't choose to use 30 year Treasuries but choose shorter maturities? "Bonds lost about half their value" is scary sounding, but it seems very very unlikely to happen to those who keep their duration reasonable.

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Re: Dalio says bonds have entered a bear market

Post by nisiprius » Fri Jan 26, 2018 11:29 am

Just for the record, and there are many issues of how to interpret this but I think it's worth looking at... this simulation shows what happens to a rolling bond ladder that has a duration of 6.31 years, about the same as that of the Vanguard Total Bond Market Index Fund.

Now, the 10-year rate has risen about 1/2% in the last six months, so, 1% per year.

Between 1940 and 1980, the rate rose maybe 15% in forty years, so, less than 1/2% per year average.

Just for laughs, what happens if the interest starts rising at 1% per year and never stops? This is total return, including bond interest (paid out as dividends in a bond fund).

Image

This is not great, but,
  • The percentage loss from year 5 to the minimum, 3.5 years in, is -7%.
  • The investor would be back to even in 7 years.
  • The investor reaches "point of indifference" in about 10 years; that is, at 10 years it has the same value it would have had if interest rates had not risen.
  • From ten years on, the investor is better off than she would have been had there been no interest rate increase.
This is probably contrary to many peoples' intuitions. Even if the interest rate never stops rising, the "maximum drawdown" is only 7%, and the loss is temporary, not permanent.

Well, yeah, ten years is a long time. Vanguard suggests that total bond "may be suitable" for investors with a 4-10 year investment horizon.
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Re: Dalio says bonds have entered a bear market

Post by garlandwhizzer » Fri Jan 26, 2018 11:38 am

It's important to realize that a bond bear market isn't at all like a stock bear market. Even in the worst bond bear markets bond holders don't lose a lot of money quickly. Rather they lose positive inflation adjusted return over time. The bond bear market, unlike a stock bear market, doesn't suddenly blow up, but your bond investment slowly and gradually loses purchasing power as time passes. Those loses are not severe or dramatic in the short or intermediate term. Quality bonds remain a source of stability and low volatility but they may well cease to produce any meaningful real inflation adjusted return in an environment like ours today, starting from a period of historically low inflation and the lowest interest rates in our history and proceeding into a period of reversal of those trends. Bonds are the anchor in the storm but going forward they are unlikely to drive the boat.

Over the past 5 years, Vanguard's Intermediate Term Treasury Fund has underperformed inflation, and so far in 2018 its total return is minus 0.95%. These are not frightening numbers but they have not increased purchasing power over time. That's what a bond bear usually looks like.

Garland Whizzer

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Re: Dalio says bonds have entered a bear market

Post by visualguy » Fri Jan 26, 2018 11:47 am

So why not switch to fixed income investments which are not bond funds when available? Is there any likely scenario for the foreseeable future where you would be ahead by being in bond funds instead of alternatives like CD ladders?

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Re: Dalio says bonds have entered a bear market

Post by 3funder » Fri Jan 26, 2018 12:29 pm

nedsaid wrote:
Thu Jan 25, 2018 10:47 pm
3funder wrote:
Thu Jan 25, 2018 10:36 pm
nedsaid wrote:
Thu Jan 25, 2018 10:29 pm
garlandwhizzer wrote:
Wed Jan 24, 2018 11:06 am
No one knows the future of markets and all predictions are best taken as a grain of salt. However, Ray Dalio's comments and point of view are interesting.

www.bloomberg.com/news/articles/2018-01 ... bear-phase
Budget deficits have no bearing on the level of interest rates. Economists have known this for years. The Reagan years and the Obama years saw relatively high budget deficits but interest rates did nothing but fall during those two administrations. I am really shocked that Ray Dalio doesn't know this.

I do think Dalio is right, that we will see a bear market in bonds. But really, is this bad news? Interest rates were kept artificially low by governments around the world in response to the 2008-2009 financial crisis. I think really what is happening is that interest rates are normalizing. I would actually like to be able to read the interest rate being paid on my savings and not have to look at them under a microscope.

Normalization of interest rates would be okay. What would be a disaster is the return of inflation, which is really bad for bonds. If we see an inflation spike, that will be bad for stocks as well. So really, I am more interested in the inflation outlook than that of interest rates.
I assume you really mean you aren't looking forward to the return of hyperinflation, as opposed to inflation itself?
Hyperinflation just isn't going to happen in my view. It happens when there is a collapse of productivity in the economy. If inflation went from 2% to 3%, we could handle it. 5% or 6% inflation would be a disaster for the markets though that is not hyperinflation. I am not a gold bug. Indeed, I own no gold.

When I talk about inflation spikes, I am thinking about the 1973-74 oil shocks, stagflation, and a nasty 50% down bear market. It wasn't a great economic period but it wasn't hyperinflation either. We are not Weimar Germany.
Fair enough. No gold here either. Yuck.

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Re: Dalio says bonds have entered a bear market

Post by nativenewenglander » Fri Jan 26, 2018 1:20 pm

Here is a link to a 222 year US Treasury chart. Draw your own conclusion on rates.
http://ritholtz.com/2012/01/222-years-o ... est-rates/

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Re: Dalio says bonds have entered a bear market

Post by Leesbro63 » Fri Jan 26, 2018 1:33 pm

nativenewenglander wrote:
Fri Jan 26, 2018 1:20 pm
Here is a link to a 222 year US Treasury chart. Draw your own conclusion on rates.
http://ritholtz.com/2012/01/222-years-o ... est-rates/
Great chart link. Kinda puts the current period in perspective.

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Re: Dalio says bonds have entered a bear market

Post by Lauretta » Fri Jan 26, 2018 1:52 pm

visualguy wrote:
Fri Jan 26, 2018 11:28 am
The problem is that with bond funds you may need to hold for almost twice the duration just to get the original principal and interest.
How did you arrive to this rule? For example, there's a rule of thumb saying that you should hold for longer than the duration in order not to lose money, but obviously that depends of how rates evolve (e.g. if they rise just after you bought the bonds it'll be different than if they rise close to the end of a period corresponding to their duration).
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Re: Dalio says bonds have entered a bear market

Post by ray.james » Fri Jan 26, 2018 2:07 pm

garlandwhizzer wrote:
Fri Jan 26, 2018 11:38 am
It's important to realize that a bond bear market isn't at all like a stock bear market. Even in the worst bond bear markets bond holders don't lose a lot of money quickly. Rather they lose positive inflation adjusted return over time. The bond bear market, unlike a stock bear market, doesn't suddenly blow up, but your bond investment slowly and gradually loses purchasing power as time passes. Those loses are not severe or dramatic in the short or intermediate term. Quality bonds remain a source of stability and low volatility but they may well cease to produce any meaningful real inflation adjusted return in an environment like ours today, starting from a period of historically low inflation and the lowest interest rates in our history and proceeding into a period of reversal of those trends. Bonds are the anchor in the storm but going forward they are unlikely to drive the boat.

Over the past 5 years, Vanguard's Intermediate Term Treasury Fund has underperformed inflation, and so far in 2018 its total return is minus 0.95%. These are not frightening numbers but they have not increased purchasing power over time. That's what a bond bear usually looks like.

Garland Whizzer
Great post, Garland as always. The other thread on "Riding the flattening yield curve" on bogleheads is another gold on understanding bonds. Young investors like myself have not paid attention to bonds,as they make 10-20% of our portfolio. Given the current headlines in news cycle it is very important to digest the reality with bonds. Hyperinflation/sudden rise in rates can happen but that is a black swan rather than one "very possible" outcome.

A few years ago in Europe and even to this day in Switzerland, people are baffled why people would put money in CD's /bonds when they yield effective/absolute negative rates to inflation. It is still the best people could do with out volatility.
When in doubt, http://www.bogleheads.org/forum/viewtopic.php?f=1&t=79939

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Re: Dalio says bonds have entered a bear market

Post by nisiprius » Fri Jan 26, 2018 2:16 pm

visualguy wrote:
Fri Jan 26, 2018 11:47 am
So why not switch to fixed income investments which are not bond funds when available? Is there any likely scenario for the foreseeable future where you would be ahead by being in bond funds instead of alternatives like CD ladders?
Unfortunately, people in the investment world only see things in terms of things that are sold by investment firms, so it's hard to read thoughtful comparisons or good analyses of bond funds versus CD ladders. In fact about the only ones I've seen have been here in the forum, particularly by Kevin M.

Here are my personal reasons for continuing to hold Total Bond instead of a CD ladder.

First, just to get it out, many--I think an increasing number--of CDs now contain language in the terms and conditions that say you do not have a right to demand early withdrawal, but that early withdrawal is "at the bank's discretion" or "with our permission." Ally added this language in 2012, while "assuring" Allan Roth that their "policy" had not changed. In fact I don't think banks do not want customers to think about the possibility of not being allowed to withdraw their money, and one reason is that the situation that would lead them to do it would be that the bank is in trouble and actually can't afford to lose the deposits--and banks don't want you to think about that, either. This is all in the land of hand-waving and paranoia. If interest rates rose so much that lots of people tried to make early withdrawals from their low-interest CDs in order to replace them with high-interest CDs, and if a bank didn't have the greatest financial strength, then I think they might play hardball on this.

Second, it's all relative, but managing a CD ladder can be somewhat inconvenient--especially if you've bought them at different banks, chasing rates, and especially if you've bought the kind that have a great rate but run for a weird number of months.

Third, I have the impression that analysis would show that CD ladders are lower-risk, but also lower-return than Vanguard Total Bond--i.e. not the same, and maybe not what you want.

If we look at the rates on 5-year CDs...
Image
...let's say the rate was about 0.8% for the five-year period 2013-2017.

Well, the total return of VBTLX, Total Bond, over the last five years was exactly 2.00% annualized.

So, 2% in the bond fund versus less than 1% in CDs. Enough of a difference to care about.
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Re: Dalio says bonds have entered a bear market

Post by ResearchMed » Fri Jan 26, 2018 2:22 pm

Grt2bOutdoors wrote:
Thu Jan 25, 2018 8:12 am
Always passive wrote:
Thu Jan 25, 2018 7:55 am
The issue with bonds may not be consequential to those in the accumulation phase that have a long way to go, but it is certainly a concern to those that are in retirement. No one is disputing that bonds are entering a bear market, interest rates can only go up.
This means that an investor that depends on bonds to fund his/her retirement has to either rely on short term bonds offering a pitiful income, or invest in the total bond market for 6 + years (6 year duration) to assure positive returns.
Are you not aggreing with me? What are the options given that the stock market is not a bargain either?
A fixed income ladder, held to maturity bears no such risk. A retiree is not forced to use mutual funds, they can and do use fixed term, laddered certificates of deposit and/or bonds. Bonds on the open market are subject to daily revaluations, bonds that are redeemed on the maturity date receive full faith and principal back usually. I caveat that with usually, because some think they can have their cake and eat it using junk bonds for high coupon and thinking junk is the same as a AAA/AA/A rated corporate or sovereign bonds issued by a G-7 issuer or US Government bonds. Purchasing emerging market sovereigns is in the same category with junk. Look to Argentina/Brazil/Venezuela when you give them your money, I say give because that is what you are doing when you hand it over to them.
I wish.

We are still locked into a 403b, where no individual bonds or CD's can be purchased.
So we can't start setting up such a ladder, even though we would really like to do so.
Annoying.

RM
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Re: Dalio says bonds have entered a bear market

Post by visualguy » Fri Jan 26, 2018 10:59 pm

Lauretta wrote:
Fri Jan 26, 2018 1:52 pm
visualguy wrote:
Fri Jan 26, 2018 11:28 am
The problem is that with bond funds you may need to hold for almost twice the duration just to get the original principal and interest.
How did you arrive to this rule? For example, there's a rule of thumb saying that you should hold for longer than the duration in order not to lose money, but obviously that depends of how rates evolve (e.g. if they rise just after you bought the bonds it'll be different than if they rise close to the end of a period corresponding to their duration).
I didn't develop this rule. I don't have the reference right now - would need to look it up, but it's a well-known rule. You can also see this result in the simulation posted by nisiprius above.

You may need to wait as long as the duration not to lose principal, but the interest would still be lost. If you also don't want to lose interest at the original rate, then you may need to wait 2*d-1 where d is the duration of the fund. This is a long time during which you don't benefit from the higher interest rates, so it seems to me that a 5-year CD ladder would be much better in this scenario.

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Re: Dalio says bonds have entered a bear market

Post by visualguy » Fri Jan 26, 2018 11:14 pm

nisiprius - the rate on 5-year CDs is similar to the yield of the Vanguard total bond index. Early withdrawal shouldn't really be a problem, but even if you don't do it, you're still re-investing 20% every year at the higher interest rates.

If interest rates indeed keep rising gradually over the next few years, then it seems like you would be much better off in a CD ladder than a bond fund which may require waiting almost twice the duration just to get the principal and original (low) interest. I think the only scenario where you would be better off with the bond fund would be if interest rates went down instead. Maybe put most in CDs and some in bond funds just in case.

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Re: Dalio says bonds have entered a bear market

Post by willthrill81 » Fri Jan 26, 2018 11:41 pm

Da5id wrote:
Thu Jan 25, 2018 8:25 am
If interest rates can only go up, there surely must be ways to leverage this absolute certainty that isn't reflected in current bond pricing! There are ways to effectively "short" bonds, go to it! (just kidding).

I don't see any big problems here. If interest rates rise (as seems likely, but not, as you say, certain), bond prices will indeed fall. Yields will rise. Life will go on. Intermediate term bond funds will do just fine. Those who need to sell their bond funds during a period of rising rates will see moderate capital losses. If we get runaway inflation and bonds defaulting everywhere, wake me up. That would be more interesting.
Don't forget that it's not guaranteed that rates will keep rising. Take a look at Japan's ten year bond yields since May, 1984. The current yield is .08%. They were -.29% in July of 2016.

Image

I hope that fixed income investors there are good at playing limbo... :shock:
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Re: Dalio says bonds have entered a bear market

Post by nisiprius » Sat Jan 27, 2018 8:17 am

visualguy wrote:
Fri Jan 26, 2018 11:14 pm
...a bond fund which may require waiting almost twice the duration just to get the principal and original (low) interest...
This is incorrect. Please cite your source. It isn't "twice the duration."

For the case that's usually discussed, a short, almost instantaneous rate rise:

1) ONE times the duration gets you to the point of indifference, the point at which you are exactly as well off as if rates had not risen.

2) The time simply to get back to even (bond market value plus accumulated interest is same as before the rise) is less than the duration.

3) The bond fund does not give you "original (low) interest." As soon as the rate rises, the bond fund's value instantaneously takes a hit, and then begins climbing out of the whole at the new rate, and never stops.

Here is a numeric example. This is a rolling ladder of bonds in which bonds are assumed to be held to maturity and replaced with freshly-issued bonds as they mature. The chart shows total return (like a mutual fund growth chart). The scale is semilogarithmic so constant compound growth rates are straight lines. The duration is 6.09 years, similar to Vanguard Total Bond.

Image

For example: (curves are calculated, numbers of years are by eyeball)

--Instantaneous drop in value is 20.1%. (6.09 years x 4% interest rate rise = 24.36%, but duration x rise is only perfectly accurate for small rises)

--Time to get back to even is between 3.5 and 4 years, less than the duration.

--After getting back to even, your total return is rising at the new, high rate, not the "original (low) interest."

--You are not just back to even, but back on track at the "point of indifference" at about 6 years. This is where the ladder's value catches up with an overtakes what would have happened had their been no rise.

--After six years, you are better off than you would have been without the rise.
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Re: Dalio says bonds have entered a bear market

Post by AtlasShrugged? » Sat Jan 27, 2018 8:29 am

Maybe it is me, but if bonds are in a 'Bear Market'....should we not be buyers? :confused
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Re: Dalio says bonds have entered a bear market

Post by corn18 » Sat Jan 27, 2018 8:35 am

JCE66 wrote:
Sat Jan 27, 2018 8:29 am
Maybe it is me, but if bonds are in a 'Bear Market'....should we not be buyers? :confused
I have been buying bonds all year just to keep my AA in line. Felt good selling high and buying low. Am I doing something wrong? I have been bored with this boglehead approach to investing, so if I could have something to fret about, that might be a nice change to care free investing.

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Re: Dalio says bonds have entered a bear market

Post by nisiprius » Sat Jan 27, 2018 8:40 am

Re "twice the duration just to get the principal and original (low) interest" there is also the argument from history, although it is hard to find good clean examples because it is hard to find places where the interest rate simply rose quickly and plateaued.

However: early 1987. Something like a 2% rise (brief spike representing a 3% rise), followed by something that can reasonably be called a "plateau" that lasts at least into 1989.

Image

FBNDX, Fidelity Investment Grade Bond Fund, currently 5.59 year duration, probably about the same back then.

Source

Image

Expected fall for 5.59 years x 2%/year interest rate rise, call it 11%. But there was a brief spike to over 10%, so at that point, 5.59 years x 3% = 17%. Actual fall, 18.6%. So, yes, the short-term model for the initial shock of a sharp rate rise is borne out.

Did it take twice the duration (11 years) to recover? I say no, it was fully recovered by early 1989.
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Re: Dalio says bonds have entered a bear market

Post by welderwannabe » Sat Jan 27, 2018 8:47 am

nexesn wrote:
Thu Jan 25, 2018 9:04 am
Sorry, this is a really ignorant question, but I'm also a total newbie when it comes to bonds (I tried googling info on this and didn't find much).

Here's my questions: When they talk about Bonds, do they also mean Muni Bonds? My wife and I are both still working, and are in a high tax bracket. So, we placed several hundred thousand in VWIUX. I understand Bogleheads advice of hold for the long run. But, I was just curious if anyone could summarize, briefly, when people mention Bonds, do they also mean Muni Bonds?

Just as an added comment, we were thinking of VWIUX as taking the place of a savings account, as the interest earned on savings is taxed so high.

Sorry for the dumb question, but ever since stumbling on this site a month ago, it's change my whole view toward investing! (In a really good way! :happy )
You should open another thread to ask this question. However, I would never use VWIUX as a replacement for a savings account. The duration of that fund is too long to use it that way. I would recommend the Vanguard Municipal Money Market VMSXX instead, or maybe Vanguard Short-Term Tax-Exempt Fund Investor Shares (VWSTX).
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Re: Dalio says bonds have entered a bear market

Post by tibbitts » Sat Jan 27, 2018 8:56 am

visualguy wrote:
Fri Jan 26, 2018 11:47 am
So why not switch to fixed income investments which are not bond funds when available? Is there any likely scenario for the foreseeable future where you would be ahead by being in bond funds instead of alternatives like CD ladders?
My answer would be that there have been many times, just since 2008, when I would have thought there would little chance of bonds beating CDs, and yet that happened for most CDs/durations that I would have chosen.

We've had this debate before but CD ladders - and I did them in the 80s and 90s particularly - are high-maintenance. Better now than before the internet, but still you're either buying brokered CDs (which have other issues) or constantly shopping and shipping your money around between banks. And that's more complicated and/or limited in deferred accounts. It sort of has to be a hobby, and you have to be careful not to miss a date and have something auto-renew for example.

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Re: Dalio says bonds have entered a bear market

Post by visualguy » Sat Jan 27, 2018 9:34 am

Nisiprius - I wasn't refering to a single rate hike, but to repeated hikes. You yourself showed a 10-year point of indifference for this in your earlier post. I'll look up a reference for the 2d-1 formula.

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Re: Dalio says bonds have entered a bear market

Post by visualguy » Sat Jan 27, 2018 10:16 am

The link to the study and some discussion can be found in this thread:

viewtopic.php?t=165157

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Re: Dalio says bonds have entered a bear market

Post by willthrill81 » Sat Jan 27, 2018 11:40 am

nisiprius wrote:
Fri Jan 26, 2018 11:29 am
Just for the record, and there are many issues of how to interpret this but I think it's worth looking at... this simulation shows what happens to a rolling bond ladder that has a duration of 6.31 years, about the same as that of the Vanguard Total Bond Market Index Fund.

Now, the 10-year rate has risen about 1/2% in the last six months, so, 1% per year.

Between 1940 and 1980, the rate rose maybe 15% in forty years, so, less than 1/2% per year average.

Just for laughs, what happens if the interest starts rising at 1% per year and never stops? This is total return, including bond interest (paid out as dividends in a bond fund).

Image

This is not great, but,
  • The percentage loss from year 5 to the minimum, 3.5 years in, is -7%.
  • The investor would be back to even in 7 years.
  • The investor reaches "point of indifference" in about 10 years; that is, at 10 years it has the same value it would have had if interest rates had not risen.
  • From ten years on, the investor is better off than she would have been had there been no interest rate increase.
This is probably contrary to many peoples' intuitions. Even if the interest rate never stops rising, the "maximum drawdown" is only 7%, and the loss is temporary, not permanent.

Well, yeah, ten years is a long time. Vanguard suggests that total bond "may be suitable" for investors with a 4-10 year investment horizon.
Thanks for the great analysis, as usual! That demonstrates what I said earlier: interest rate increases are not a long-term threat to bonds. That honor goes to inflation, especially when it's 'unexpected'.
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Re: Dalio says bonds have entered a bear market

Post by metalworking » Sat Jan 27, 2018 11:49 am

nisiprius wrote:
Fri Jan 26, 2018 11:29 am
Just for the record, and there are many issues of how to interpret this but I think it's worth looking at... this simulation shows what happens to a rolling bond ladder that has a duration of 6.31 years, about the same as that of the Vanguard Total Bond Market Index Fund.

Now, the 10-year rate has risen about 1/2% in the last six months, so, 1% per year.

Between 1940 and 1980, the rate rose maybe 15% in forty years, so, less than 1/2% per year average.

Just for laughs, what happens if the interest starts rising at 1% per year and never stops? This is total return, including bond interest (paid out as dividends in a bond fund).

Image

This is not great, but,
  • The percentage loss from year 5 to the minimum, 3.5 years in, is -7%.
  • The investor would be back to even in 7 years.
  • The investor reaches "point of indifference" in about 10 years; that is, at 10 years it has the same value it would have had if interest rates had not risen.
  • From ten years on, the investor is better off than she would have been had there been no interest rate increase.
This is probably contrary to many peoples' intuitions. Even if the interest rate never stops rising, the "maximum drawdown" is only 7%, and the loss is temporary, not permanent.

Well, yeah, ten years is a long time. Vanguard suggests that total bond "may be suitable" for investors with a 4-10 year investment horizon.
Late to this thread but wanted to thank you or the graph. This cleared a lot of questions up for me. Thanks

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Re: Dalio says bonds have entered a bear market

Post by Copernicus » Sat Jan 27, 2018 9:50 pm

Blueskies123 wrote:
Fri Jan 26, 2018 11:08 am
thangngo wrote:
Thu Jan 25, 2018 1:02 pm
garlandwhizzer wrote:
Wed Jan 24, 2018 11:06 am
No one knows the future of markets and all predictions are best taken as a grain of salt. However, Ray Dalio's comments and point of view are interesting.

www.bloomberg.com/news/articles/2018-01 ... bear-phase
yeah buying opportunity for bonds is coming up.
If you working and do not need your portfolio that is fine but if you are retired and living off your portfolio living through a 6 bond bear is not easy. Bonds lost about half their value over 6 years and if you held on or bought more you had a nice bull market. 30 Year Treasury Bond Prices, Monthly (1978 – 2007)
http://www.thedigeratilife.com/images/b ... schart.jpg
Image
I imagine that while the bonds "lost" the principal on the paper, the holders of intermediate-term bond mutual funds must have started making a lot more in dividends, and the total return from bond funds must have obliterated the performance of stocks in the same duration - And also of CDs etc.

By the end of that bad 6-year period, a fund with 6 years duration would have replaced most of the old bonds, and held new, higher yielding bonds that would do well in subsequent years.

I am not able to find the correct answer, but does anyone know the history, and comment whether my conjecture is valid?

.

columbia
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Re: Dalio says bonds have entered a bear market

Post by columbia » Sun Jan 28, 2018 10:55 am

TBM has a current one year return of 3.56% (per their website). That doesn’t seem like a bear market to me.

CULater
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Re: Dalio says bonds have entered a bear market

Post by CULater » Sun Jan 28, 2018 10:14 pm

IT'S OFFICIAL! BOND MARKET NOW CLOSED DUE TO BEAR THREAT!!!

Image
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

visualguy
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Re: Dalio says bonds have entered a bear market

Post by visualguy » Sun Jan 28, 2018 10:39 pm

columbia wrote:
Sun Jan 28, 2018 10:55 am
TBM has a current one year return of 3.56% (per their website). That doesn’t seem like a bear market to me.
That was for 2017. It's -0.84% year-to-date for 2018. We'll see how it develops.

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Re: Dalio says bonds have entered a bear market

Post by saltycaper » Sun Jan 28, 2018 11:26 pm

nisiprius wrote:
Fri Jan 26, 2018 2:16 pm

...let's say the rate was about 0.8% for the five-year period 2013-2017.

Well, the total return of VBTLX, Total Bond, over the last five years was exactly 2.00% annualized.

So, 2% in the bond fund versus less than 1% in CDs. Enough of a difference to care about.
The FRED numbers are pretty much worthless for this type of analysis. It was easy to find direct and brokered CDs with much higher yields. Even if you went with direct CDs, you didn't have to keep moving your money around unless you insisted on seeking out the highest possible yield. Lots of banks offered consistently higher yields than those shown in the chart.
Quod vitae sectabor iter?

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Re: Dalio says bonds have entered a bear market

Post by Greg in Idaho » Mon Jan 29, 2018 10:30 am

CULater wrote:
Sun Jan 28, 2018 10:14 pm
IT'S OFFICIAL! BOND MARKET NOW CLOSED DUE TO BEAR THREAT!!!

Image
I have my pepper spray

CULater
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Re: Dalio says bonds have entered a bear market

Post by CULater » Mon Jan 29, 2018 10:32 am

Bears LOVE a little pepper seasoning on their meals!!!
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

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Re: Dalio says bonds have entered a bear market

Post by Da5id » Mon Jan 29, 2018 10:41 am

saltycaper wrote:
Sun Jan 28, 2018 11:26 pm
nisiprius wrote:
Fri Jan 26, 2018 2:16 pm

...let's say the rate was about 0.8% for the five-year period 2013-2017.

Well, the total return of VBTLX, Total Bond, over the last five years was exactly 2.00% annualized.

So, 2% in the bond fund versus less than 1% in CDs. Enough of a difference to care about.
The FRED numbers are pretty much worthless for this type of analysis. It was easy to find direct and brokered CDs with much higher yields. Even if you went with direct CDs, you didn't have to keep moving your money around unless you insisted on seeking out the highest possible yield. Lots of banks offered consistently higher yields than those shown in the chart.
I totally agree. If you are comparing CD returns to bond returns, you should compare at least a top 5% CD rate, which you can get by shopping around trivially. Could obviously flip this by comparing top 5% CD returns to a high expense ratio bond fund, which is just as valid a comparison. IMHO of course.

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Re: Dalio says bonds have entered a bear market

Post by 1nv35t » Mon Jan 29, 2018 4:47 pm

3funder wrote:
Fri Jan 26, 2018 12:29 pm
Fair enough. No gold here either. Yuck.
TIPS/LTT barbell instead of a bond bullet, or what about a even wider barbell of stocks and gold?
Image
Yuck!

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Re: Dalio says bonds have entered a bear market

Post by invst65 » Mon Jan 29, 2018 5:15 pm

Every time I hear something negative about bonds I go over to the government site and check the yields.... https://www.treasury.gov/resource-cente ... data=yield

About 20% of my portfolio is long term bonds which I hold directly. Haven't seen a lot of fluctuation in yields. They might drop in value when somebody like Dalio says what he says but they seem to take a lickin' and keep on tickin'.
Last edited by invst65 on Mon Jan 29, 2018 6:00 pm, edited 1 time in total.

TonyDAntonio
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Re: Dalio says bonds have entered a bear market

Post by TonyDAntonio » Mon Jan 29, 2018 5:56 pm

corn18 wrote:
Sat Jan 27, 2018 8:35 am
JCE66 wrote:
Sat Jan 27, 2018 8:29 am
Maybe it is me, but if bonds are in a 'Bear Market'....should we not be buyers? :confused
I have been buying bonds all year just to keep my AA in line. Felt good selling high and buying low. Am I doing something wrong? I have been bored with this boglehead approach to investing, so if I could have something to fret about, that might be a nice change to care free investing.
You've been selling high and buying high. Bonds are no longer at all time highs (ie. low rates) but they are still high. That's the 'problem'.

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Re: Dalio says bonds have entered a bear market

Post by jginseattle » Mon Jan 29, 2018 7:30 pm

Experts are very confident about their guesses.

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EyeYield
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Re: Dalio says bonds have entered a bear market

Post by EyeYield » Mon Jan 29, 2018 9:51 pm

One of my hobbies is checking how well the gurus who are making predictions today have done in the past, to find the folly in such predictions by showing how wrong they have been.
Randomly I searched Ray Dalio 2012. The results showed that in a Forbes article dated Dec. 13 2012 he called an end to the bond bull run.

Ray Dalio Thinks The Bond Bull Market Could Finally Turn In 2013
https://www.forbes.com/sites/steveschae ... 40aef49a7e

Well, he got that right, darn, so on to other years.........

He doesn't believe he can see the future, he just makes predictions about it.
From the same article:
"those who live by the crystal ball are destined to eat ground glass"

No doubt he's a pretty smart fellow and maybe smarter than the market for a certain period of time.

I myself will buy more total bond fund when/if it gets to the level I bought in Dec 2016. If one of my ladder CD's happen to mature at that time it will be a good case of CD maturity timing.
"The stock market is a giant distraction from the business of investing." - Jack Bogle

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Re: Dalio says bonds have entered a bear market

Post by AlohaJoe » Mon Jan 29, 2018 10:02 pm

nisiprius wrote:
Fri Jan 26, 2018 10:59 am
And come to think of it: just how bad was "1980 to 1981?" Total Bond doesn't go back that far [...]"
FWIW, total bond goes all the way back to 1975, which is helpful in these kind of alarmist "we have no idea what total bond will do when rates go up" threads.

Here's the One Neat Trick to get total bond returns back to 1975....
  • Instead of looking at Vanguard's fund, we need to look at the index the fund is based on. Which is (now) called the Bloomberg Barclays US Aggregate Bond TR USD index.
  • We need to find that on morningstar. Which is tricky. So I'll save you the hard work: just use this ticker: XIUSA000MC
It looks like the index went from 119 on January 1, 1980 to 134.33 on December 31, 1981. For an annualised return of, what?, 10% or something?

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Re: Dalio says bonds have entered a bear market

Post by saltycaper » Tue Jan 30, 2018 12:13 am

AlohaJoe wrote:
Mon Jan 29, 2018 10:02 pm

It looks like the index went from 119 on January 1, 1980 to 134.33 on December 31, 1981. For an annualised return of, what?, 10% or something?
Can't find the chart right now, but negative after inflation. I think 1979-80-81 was double-digit inflation each year. Started to normalize 1982.
Quod vitae sectabor iter?

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Re: Dalio says bonds have entered a bear market

Post by jalbert » Tue Jan 30, 2018 1:26 am

Scratching my head to try to understand exactly what a bear market for bonds means. Does it mean a drop of at least 20% like it does for stocks?
Risk is not a guarantor of return.

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Re: Dalio says bonds have entered a bear market

Post by willthrill81 » Tue Jan 30, 2018 1:41 am

jalbert wrote:
Tue Jan 30, 2018 1:26 am
Scratching my head to try to understand exactly what a bear market for bonds means. Does it mean a drop of at least 20% like it does for stocks?
For intermediate term treasuries, the worst drawdown since 1978 was -10.7% between 1979 and 1980. For long-term treasuries, the biggest drawdown was -23.12% around the same period. But those are nominal dollars and not even half the story.

But in real terms, it was a bloodbath, one that is far too seldom discussed. From Jan., 1978, through Aug., 1981, the drawdown in real terms for ITT was -28.58% and -46.54% for LTT. That 'safe haven' of fixed income wasn't safe at all. Of course they eventually recovered (by 1983 for ITT and 1985 for LTT), but it was still a brutal time for bonds. Even short-term treasuries had a real drawdown of over -15%. One-month T-bills, however, had a real drawdown of just -6%; 'cash' proved itself to be remarkably resilient to high inflation (which it has done often around the globe).

Image
The blue line is ITT, and the red line is LTT.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Dalio says bonds have entered a bear market

Post by jalbert » Tue Jan 30, 2018 2:52 am

I lived through the inflation of the 70's and am aware of the real return of noninal bonds during high inflation. Is that what Mr. Dalio means by his proclamation of being in a bear market for bonds? That would be a pretty bold, if not audacious prediction at present.
Risk is not a guarantor of return.

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Re: Dalio says bonds have entered a bear market

Post by boglewill34 » Tue Jan 30, 2018 11:00 am

willthrill81 wrote:
Tue Jan 30, 2018 1:41 am
jalbert wrote:
Tue Jan 30, 2018 1:26 am
Scratching my head to try to understand exactly what a bear market for bonds means. Does it mean a drop of at least 20% like it does for stocks?
For intermediate term treasuries, the worst drawdown since 1978 was -10.7% between 1979 and 1980. For long-term treasuries, the biggest drawdown was -23.12% around the same period. But those are nominal dollars and not even half the story.

But in real terms, it was a bloodbath, one that is far too seldom discussed. From Jan., 1978, through Aug., 1981, the drawdown in real terms for ITT was -28.58% and -46.54% for LTT. That 'safe haven' of fixed income wasn't safe at all. Of course they eventually recovered (by 1983 for ITT and 1985 for LTT), but it was still a brutal time for bonds. Even short-term treasuries had a real drawdown of over -15%. One-month T-bills, however, had a real drawdown of just -6%; 'cash' proved itself to be remarkably resilient to high inflation (which it has done often around the globe).

Image
The blue line is ITT, and the red line is LTT.
I keep getting confused and can't find a definitive source for whether numbers and graphs like this regarding bonds assume reinvestment of yield or not? In this period they were yielding double digits, so I'd ASSume a growth trajectory for reinvested capital, eventually. Any idea how the yield plays into those numbers?

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Re: Dalio says bonds have entered a bear market

Post by willthrill81 » Tue Jan 30, 2018 11:25 am

boglewill34 wrote:
Tue Jan 30, 2018 11:00 am
willthrill81 wrote:
Tue Jan 30, 2018 1:41 am
jalbert wrote:
Tue Jan 30, 2018 1:26 am
Scratching my head to try to understand exactly what a bear market for bonds means. Does it mean a drop of at least 20% like it does for stocks?
For intermediate term treasuries, the worst drawdown since 1978 was -10.7% between 1979 and 1980. For long-term treasuries, the biggest drawdown was -23.12% around the same period. But those are nominal dollars and not even half the story.

But in real terms, it was a bloodbath, one that is far too seldom discussed. From Jan., 1978, through Aug., 1981, the drawdown in real terms for ITT was -28.58% and -46.54% for LTT. That 'safe haven' of fixed income wasn't safe at all. Of course they eventually recovered (by 1983 for ITT and 1985 for LTT), but it was still a brutal time for bonds. Even short-term treasuries had a real drawdown of over -15%. One-month T-bills, however, had a real drawdown of just -6%; 'cash' proved itself to be remarkably resilient to high inflation (which it has done often around the globe).

Image
The blue line is ITT, and the red line is LTT.
I keep getting confused and can't find a definitive source for whether numbers and graphs like this regarding bonds assume reinvestment of yield or not? In this period they were yielding double digits, so I'd ASSume a growth trajectory for reinvested capital, eventually. Any idea how the yield plays into those numbers?
The yield is factored in to the above chart and reinvested. It assumes a lump sum investment of $10k at the beginning with no additional investments beyond reinvested yield.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Dalio says bonds have entered a bear market

Post by willthrill81 » Tue Jan 30, 2018 11:30 am

jalbert wrote:
Tue Jan 30, 2018 2:52 am
I lived through the inflation of the 70's and am aware of the real return of noninal bonds during high inflation. Is that what Mr. Dalio means by his proclamation of being in a bear market for bonds? That would be a pretty bold, if not audacious prediction at present.
My points were that a truly bad bear market in bonds from an inflation-adjusted perspective at some point is a very real possibility because we've already seen it happen.

However, I agree with you that the likelihood of high inflation causing a bear market in bonds in the near term is very low.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Dalio says bonds have entered a bear market

Post by blackcat allie » Wed Oct 03, 2018 11:15 am

Honestly I have nothing substantive to add to theory/analysis except to voice angst that BND are at 52 week low.
I realize I need to stick things out for longer time frame, and am probably going to buy a little more.
#BondsBottomlessPit :|

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Re: Dalio says bonds have entered a bear market

Post by mptfan » Wed Oct 03, 2018 3:14 pm

nisiprius wrote:
Fri Jan 26, 2018 10:59 am
Leesbro63 wrote:
Fri Jan 26, 2018 10:32 am
greg24 wrote:
Fri Jan 26, 2018 10:17 am
We're just about reaching 10 straight years of pundits screaming "interest rates have no where to go but up!!!"
+1
Furthermore, they've been going up, over 1/2% in the last six months--along with my bank savings accounts. And people are still saying "Sooner or later interest rates will go up and when they do, oh boy, watch out, it's gonna be ugly, Katy bar the door."

Dalio said "A 1 percent rise in bond yields will produce the largest bear market in bonds that we have seen since 1980 to 1981." Well, OK, there has been a 1/2% percent rise in just the last few months, so whatever he's talking about, it's already half over.
Right, and here we are in October 2018 with the 10 year treasury rate at 3.1%, up from 2.3% a year ago, has the bond apocolypse started yet??

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