Long Term Bonds getting killed today

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hdas
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Long Term Bonds getting killed today

Post by hdas » Thu Nov 07, 2019 12:51 pm

What a day :twisted: , as of this moment:

TMF - 3X Leverage LTT > -6.75%
Ultrabond Futures > -2.74% (Measured from settlement)
EDV (LTT Strips) > -3.52%

The CBOE 30y yield index is at 2.441%....perhaps time to "wet your beak".

Cheers :greedy
"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

UberGrub
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Re: Long Term Bonds getting killed today

Post by UberGrub » Thu Nov 07, 2019 12:54 pm

hdas wrote:
Thu Nov 07, 2019 12:51 pm
What a day :twisted: , as of this moment:

TMF - 3X Leverage LTT > -6.75%
Ultrabond Futures > -2.74% (Measured from settlement)
EDV (LTT Strips) > -3.52%

The CBOE 30y yield index is at 2.441%....perhaps time to "wet your beak".

Cheers :greedy
If "wet your beak" means buy, whoever holds TMF will ironically do the exact opposite. At the end of the day, the TMF fund will sell exposure.

NotTooDeepLearning
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Re: Long Term Bonds getting killed today

Post by NotTooDeepLearning » Thu Nov 07, 2019 3:25 pm

It's one of those days (or weeks) where I'm just not gonna look at my leveraged holdings. I'll rebalance come December.

Vanguard Fan 1367
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Re: Long Term Bonds getting killed today

Post by Vanguard Fan 1367 » Thu Nov 07, 2019 3:26 pm

Vanguard's Long Term Corporate Bond Fund ETF is down .85% right now. (VCLT)

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Re: Long Term Bonds getting killed today

Post by garlandwhizzer » Thu Nov 07, 2019 7:51 pm

We're seeing the other side of long term bonds today. They've had quite a run over the last 37 years and investors are in love with them for returns and diversification. LTB demonstrated today one of their potential drawbacks, increased volatility. Today in the US, Europe, and Japan there is hope that a trade deal will get done including reduced tariffs on both sides. Also hope that aggressive monetary policy stimulus worldwide may stimulate global economic growth. The risk of recession seems much diminished at present. Interestingly, US stocks had only modest gains while LT bonds suffered much greater losses. Why the disparity? Perhaps all this good global growth news has some considering the very slight risk of the return of inflation which in recent months seemed impossible. The slightest microscopic whiff of potential future inflation risk and LT bonds tank for the day. This setback for LT bonds likely won't continue unless we see signs of increasing inflation which is IMO very unlikely but possible.

One reason for picking a bond portfolio that includes multiple durations averaging out to intermediate duration (TBM or barbell) is to reduce volatility. The other is to be prepared for both deflation and inflation. LT works great in deflation, lousy in inflation. It is somewhere between exceedingly hard and impossible to predict accurately whether the risk to fixed income will be deflation or inflation over the next few decades. Investors now are betting on no significant inflation anytime in the future due to secular issues. It makes sense. The bond market believes that which is why LT's are near all time low yields and why they got hit so hard today with just the slightest pinch of inflation fear.

Garland Whizzer

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Re: Long Term Bonds getting killed today

Post by kabob » Thu Nov 07, 2019 9:20 pm

VCLT is a great Run & Hide a while ETF... One gets a much better than average monthly dividend, plus a good chance of capital gain on recovery of a market slump.
Image
I purchased a significant amt last Nov(with Gvt shutdown looming) ~84/shr - and just had take to the gain when it went over $102 and overbought
That's not really expected with Long Bonds, but it does happen with VCLT.
Sometimes VCLT is a great Wait a While & See place to be when there's a Signifigant market dip....

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Re: Long Term Bonds getting killed today

Post by HEDGEFUNDIE » Thu Nov 07, 2019 9:54 pm

UberGrub wrote:
Thu Nov 07, 2019 12:54 pm
hdas wrote:
Thu Nov 07, 2019 12:51 pm
What a day :twisted: , as of this moment:

TMF - 3X Leverage LTT > -6.75%
Ultrabond Futures > -2.74% (Measured from settlement)
EDV (LTT Strips) > -3.52%

The CBOE 30y yield index is at 2.441%....perhaps time to "wet your beak".

Cheers :greedy
If "wet your beak" means buy, whoever holds TMF will ironically do the exact opposite. At the end of the day, the TMF fund will sell exposure.
I have no idea why I am supposed to care about this.

What matters is that TLT was down 1.8% today and TMF was down 5.4%. In other words, TMF is doing exactly what it is supposed to do,

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Re: Long Term Bonds getting killed today

Post by Longtermgrowth » Thu Nov 07, 2019 11:11 pm

kabob wrote:
Thu Nov 07, 2019 9:20 pm
VCLT is a great Run & Hide a while ETF... One gets a much better than average monthly dividend, plus a good chance of capital gain on recovery of a market slump.
Image
I purchased a significant amt last Nov(with Gvt shutdown looming) ~84/shr - and just had take to the gain when it went over $102 and overbought
That's not really expected with Long Bonds, but it does happen with VCLT.
Sometimes VCLT is a great Wait a While & See place to be when there's a Signifigant market dip....
What do you think of preferred stocks? Rick Ferri recommends ETFs like PFFD for the higher yield over corporates, while having similar behavior, and a good chunk of distributions being qualified dividend income, making it suitable for taxable accounts in some situations.

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Re: Long Term Bonds getting killed today

Post by nedsaid » Thu Nov 07, 2019 11:14 pm

Well, so much for that inverted yield curve. I think I am going to start a "Long Term Bonds in freefall" thread. Or is that free fall?
A fool and his money are good for business.

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Re: Long Term Bonds getting killed today

Post by CheepSkate » Thu Nov 07, 2019 11:17 pm

No one should own a long-duration bond fund who can't tell me how much value it will lose if interest rates or inflation popped up 2% unexpectedly.

Spoiler: a lot.
Spoiler 2: plus another great financial crisis.

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Re: Long Term Bonds getting killed today

Post by MotoTrojan » Thu Nov 07, 2019 11:25 pm

HEDGEFUNDIE wrote:
Thu Nov 07, 2019 9:54 pm
UberGrub wrote:
Thu Nov 07, 2019 12:54 pm
hdas wrote:
Thu Nov 07, 2019 12:51 pm
What a day :twisted: , as of this moment:

TMF - 3X Leverage LTT > -6.75%
Ultrabond Futures > -2.74% (Measured from settlement)
EDV (LTT Strips) > -3.52%

The CBOE 30y yield index is at 2.441%....perhaps time to "wet your beak".

Cheers :greedy
If "wet your beak" means buy, whoever holds TMF will ironically do the exact opposite. At the end of the day, the TMF fund will sell exposure.
I have no idea why I am supposed to care about this.

What matters is that TLT was down 1.8% today and TMF was down 5.4%. In other words, TMF is doing exactly what it is supposed to do,
Agreed. It is amazing to see how quickly people panic when bond prices go down, but barely seem to notice the orders of magnitude greater rise leading up to it.

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Re: Long Term Bonds getting killed today

Post by AHTFY » Thu Nov 07, 2019 11:27 pm

With all this talk, I just wanted to say that I'm very pleased with Vanguard's Total Bond fund (BND in ETF form). Only down 0.51% today.

I want decent returns and low risk in my bond allocation. Risk and high volatility belong in my equity allocation.

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Re: Long Term Bonds getting killed today

Post by MotoTrojan » Thu Nov 07, 2019 11:28 pm

AHTFY wrote:
Thu Nov 07, 2019 11:27 pm
With all this talk, I just wanted to say that I'm very pleased with Vanguard's Total Bond fund (BND in ETF form). Only down 0.51% today.

I want decent returns and low risk in my bond allocation. Risk and high volatility belong in my equity allocation.
BND includes corporate bonds and credit risk. Why not hold treasuries?

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Re: Long Term Bonds getting killed today

Post by AHTFY » Thu Nov 07, 2019 11:44 pm

MotoTrojan wrote:
Thu Nov 07, 2019 11:28 pm
AHTFY wrote:
Thu Nov 07, 2019 11:27 pm
With all this talk, I just wanted to say that I'm very pleased with Vanguard's Total Bond fund (BND in ETF form). Only down 0.51% today.

I want decent returns and low risk in my bond allocation. Risk and high volatility belong in my equity allocation.
BND includes corporate bonds and credit risk. Why not hold treasuries?
In theory, I would avoid those corporates, but Vanguard's Total Bond fund is only 26.8% corporate (by my calculation a few months ago), they are high-quality corporates, and I like the addition of commercial mortgage-backed and foreign, which give me additional diversification. Also, the resulting yield is higher than Treasuries with similar average duration.

You'll see that VBTLX and VFITX have similar returns but VBTLX has lower volatility. https://www.portfoliovisualizer.com/bac ... ion2_2=100

strongboy2005
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Re: Long Term Bonds getting killed today

Post by strongboy2005 » Fri Nov 08, 2019 12:22 am

Volatility is good.

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Re: Long Term Bonds getting killed today

Post by AHTFY » Fri Nov 08, 2019 12:47 am

strongboy2005 wrote:
Fri Nov 08, 2019 12:22 am
Volatility is good.
In that case, I'll go 60% in a 3x leveraged stock fund and 40% in EDV.

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Re: Long Term Bonds getting killed today

Post by kabob » Fri Nov 08, 2019 1:20 am

What do you think of preferred stocks? Rick Ferri recommends ETFs like PFFD for the higher yield over corporates, while having similar behavior, and a good chunk of distributions being qualified dividend income, making it suitable for taxable accounts in some situations.

Hmm... But looks like I Should, Thanks...
Image
I just Love a Weekly Bull Cross below the Zero Line - and ride the $$$$...
As an Applied Mathematician and Computer Scientist, I like technical Analysis and actively search for em. (Bulls X''s below the line, that is)

PFFD Distributions
30-Day SEC Yield 5.54%
12-Month Dividend Yield 5.70%
Distribution Yield 5.41%
Distribution Frequency Monthly
What's not to like about that in a possibly volatile market - not a Vanguard ETF, but Nice yield...
Last edited by kabob on Fri Nov 08, 2019 7:56 am, edited 1 time in total.

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Re: Long Term Bonds getting killed today

Post by HEDGEFUNDIE » Fri Nov 08, 2019 1:27 am

AHTFY wrote:
Fri Nov 08, 2019 12:47 am
strongboy2005 wrote:
Fri Nov 08, 2019 12:22 am
Volatility is good.
In that case, I'll go 60% in a 3x leveraged stock fund and 40% in EDV.
If you did, and held on for 20 years, I bet you'd be a very happy camper.

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Re: Long Term Bonds getting killed today

Post by Johnnie » Fri Nov 08, 2019 8:17 am

Maybe it's just because I came of age during the great inflation/bond rout of the 1970s-80s, but here's what scares me, and it's not zombies, it's long bonds. Those things can kill you. (They then went on to make their owners good money for 40 years, but I'm still skeered.)
"I know nothing."

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Re: Long Term Bonds getting killed today

Post by atdharris » Fri Nov 08, 2019 12:32 pm

It doesn't sound like a trade deal is actually going to happen since the US denied agreeing to drop tariffs. I hold TLT in my stock heavy portfolio. I still believe rates will move down from here or at the very least remain steady.

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Re: Long Term Bonds getting killed today

Post by MotoTrojan » Fri Nov 08, 2019 12:58 pm

AHTFY wrote:
Fri Nov 08, 2019 12:47 am
strongboy2005 wrote:
Fri Nov 08, 2019 12:22 am
Volatility is good.
In that case, I'll go 60% in a 3x leveraged stock fund and 40% in EDV.
Not far from what hedgefundie is doing. Bit more bond volatility would actually help here though (TMF).

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Re: Long Term Bonds getting killed today

Post by hdas » Fri Nov 08, 2019 1:06 pm

atdharris wrote:
Fri Nov 08, 2019 12:32 pm
I still believe rates will move down from here or at the very least remain steady.
Last year ppl were convinced of higher rates, this year lower rates. Perhaps we are going to keep oscillating between 3.5% - 2%. However, given than most are convinced that a recession is coming, I find that the scenario were this is not only not true, but the economy strengthens will be very bad for bonds. Cheers :greedy
"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

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Re: Long Term Bonds getting killed today

Post by Scooter57 » Fri Nov 08, 2019 1:16 pm

AHTFY wrote:
Thu Nov 07, 2019 11:44 pm

In theory, I would avoid those corporates, but Vanguard's Total Bond fund is only 26.8% corporate (by my calculation a few months ago), they are high-quality corporates, and I like the addition of commercial mortgage-backed and foreign, which give me additional diversification. Also, the resulting yield is higher than Treasuries with similar average duration.
Actually, this is not true. Vanguard's Total Bond Fund is about 27% Corporates, but over half of those are rated at the lowest tier of investment grade. In this the fund mirrors the actual total bond market where over half of all corporate bonds are rated at the very lowest tier of investment grade.

Because of the hunger for yield, a ton of very poor quality corporate debt has been issued over the last few years, with very weak protections for bondholders (covenants.) This is something that knowledgeable people have been flagging as a serious risk that is being overlooked by investors.

Should this poor quality debt drop one more step the funds and ETFs that buy only investment grade bonds would have to sell them, and there is some question as to what would have to happen to the price of these bonds for them to find purchasers should that happen. If 14% of Total Bond Market's holdings had to be sold at a significant loss, it would have a big impact on the NAV of the fund.

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Re: Long Term Bonds getting killed today

Post by TBillT » Fri Nov 08, 2019 1:41 pm

I buying some TLT on dips

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Re: Long Term Bonds getting killed today

Post by AHTFY » Fri Nov 08, 2019 2:30 pm

Scooter57 wrote:
Fri Nov 08, 2019 1:16 pm

Actually, this is not true. Vanguard's Total Bond Fund is about 27% Corporates, but over half of those are rated at the lowest tier of investment grade.
That 13.5% is still investment grade, albeit the lower possible level. In fact, Vanguard's Total Bond Fund is 18.0% Baa rated (that must include the commercial backed paper). My point was that there are no junk bonds in Vanguard's Total Bond Fund. Yes, there is some risk in that 18.0%, but it's not that great.

In a recession or market crash, owning long-duration Treasuries will be a better hedge than a total bond fund. However, in a 1970s to early 80s rising interest rates caused recession, intermediate-duration Treasuries or a total bond fund will do better. Yes, total bond has some credit risk, but long-term Treasuries have greater interest rate risk and intermediate Treasuries have lower returns.

I analyzed the results in the SIMBA spreadsheet going back to 1871 and chose total bond market as delivering the best risk-reward (diversification, max drawdown, volatility, safe withdrawal rate) in a 60-40 portfolio, but the differences are often negligible. Using TBM gives a safe withdrawal rate of 4.34% over 30 years at the fifth percentile while LT Treasuries has a SWR of 4.00% and EDV 3.34%. On the other hand, EDV gives a CAGR of 7.75% vs. 7.47% for total bond, but I'm not willing to put up with the extra vol, larger drawdown, and lower SWR for 0.28%.

Just my 2 cents.

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Re: Long Term Bonds getting killed today

Post by Scooter57 » Fri Nov 08, 2019 2:52 pm

You don't know how many of those Baa rated bonds have deteriorated in quality since they were rated. Those of us who remember 2008 recall that the rating agencies often do not reexamine the ratings of bonds after an initial rating, and that many dangerous loans carried ratings from years before that didn't reflect the current real value of the holdings.

Looking at history is no guide here, either. There is now a much larger proportion of all bonds that are rated at the lowest investment grade. There are also far, far more treasury bonds out there than ever before, which can have an effect on demand and price going forward. Yes, it is possible that the Fed will continue to buy up huge amounts of the bonds that the Treasury issues, and that this will not blow up, but it isn't certain. We are in completely unexplored territory here after the longest period in US history of artificial rate suppression by the central bank.

Unlike the with stocks, a good case could be made for buying managed bond funds that study the bonds they buy before they buy them as opposed to bond index funds that have to sample an index without regard to the current state of the businesses that issue them.

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Re: Long Term Bonds getting killed today

Post by AHTFY » Fri Nov 08, 2019 3:21 pm

Scooter57 wrote:
Fri Nov 08, 2019 2:52 pm
Unlike the with stocks, a good case could be made for buying managed bond funds that study the bonds they buy before they buy them as opposed to bond index funds that have to sample an index without regard to the current state of the businesses that issue them.
I think I'd rather buy a low-cost bond index fund rather than a "managed bond fund." I don't know how to "beat" the bond market and I don't know how to select a manager who might be able to do so. (The only adjustment I would ever make is if tax laws make it more profitable [or less costly] to buy one type of bond rather than another, i.e., munis in a taxable account if required.)

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Re: Long Term Bonds getting killed today

Post by nisiprius » Fri Nov 08, 2019 8:39 pm

Among people in the forum advocating the use of long-term bond funds, the commonest reason given is negative correlation with stocks. They feel confident in the persistence of negative correlation between stocks and bonds, so they use the longest-term bond vehicles they can find, so they can get the largest fluctuations and cancel out the largest possible amount of stock fluctuations.

To the extent this is reliable, it should work both ways. In such a portfolio, when there are losses in long-term bonds, they ought to be offset by gains in stocks, so long-term-bond dips shouldn't be a big concern.

Two unleveraged ETFS: EDV for long-term bonds in black, VTI for stocks in brown.

Image

Two leveraged ETFs: TMF for 3X leveraged long-term bonds in black, UPRO for 3X leveraged stocks in brown.

Image

At least in the last week, stocks did rise, but not very much, compared to the drop in long-term bonds.
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Re: Long Term Bonds getting killed today

Post by OnTrack » Fri Nov 08, 2019 9:42 pm

nedsaid wrote:
Thu Nov 07, 2019 11:14 pm
Well, so much for that inverted yield curve. I think I am going to start a "Long Term Bonds in freefall" thread. Or is that free fall?
There is a "US Bonds in free fall" thread.
viewtopic.php?f=10&t=294453

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Re: Long Term Bonds getting killed today

Post by HEDGEFUNDIE » Fri Nov 08, 2019 10:13 pm

nisiprius wrote:
Fri Nov 08, 2019 8:39 pm
Among people in the forum advocating the use of long-term bond funds, the commonest reason given is negative correlation with stocks. They feel confident in the persistence of negative correlation between stocks and bonds, so they use the longest-term bond vehicles they can find, so they can get the largest fluctuations and cancel out the largest possible amount of stock fluctuations.

To the extent this is reliable, it should work both ways. In such a portfolio, when there are losses in long-term bonds, they ought to be offset by gains in stocks, so long-term-bond dips shouldn't be a big concern.

Two unleveraged ETFS: EDV for long-term bonds in black, VTI for stocks in brown.

Image

Two leveraged ETFs: TMF for 3X leveraged long-term bonds in black, UPRO for 3X leveraged stocks in brown.

Image

At least in the last week, stocks did rise, but not very much, compared to the drop in long-term bonds.
Five days of performance is supposed to tell me..:what exactly?

Since the inception of TMF and UPRO (10 years) their correlation has been -0.5

That’s as strong a negative correlation as you’ll find of any asset pair.

https://www.portfoliovisualizer.com/ass ... &months=36
Last edited by HEDGEFUNDIE on Fri Nov 08, 2019 10:36 pm, edited 1 time in total.

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Re: Long Term Bonds getting killed today

Post by hdas » Fri Nov 08, 2019 10:30 pm

nisiprius wrote:
Fri Nov 08, 2019 8:39 pm
Among people in the forum advocating the use of long-term bond funds, the commonest reason given is negative correlation with stocks. They feel confident in the persistence of negative correlation between stocks and bonds, so they use the longest-term bond vehicles they can find, so they can get the largest fluctuations and cancel out the largest possible amount of stock fluctuations.

To the extent this is reliable, it should work both ways. In such a portfolio, when there are losses in long-term bonds, they ought to be offset by gains in stocks, so long-term-bond dips shouldn't be a big concern.

Two unleveraged ETFS: EDV for long-term bonds in black, VTI for stocks in brown.

Image

Two leveraged ETFs: TMF for 3X leveraged long-term bonds in black, UPRO for 3X leveraged stocks in brown.

Image

At least in the last week, stocks did rise, but not very much, compared to the drop in long-term bonds.
Love the old school BigChart displays. This website was around during the internet bubble days and basically enabled me to get hooked in the best game of all time. Cheers :greedy
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Re: Long Term Bonds getting killed today

Post by Tyler Aspect » Fri Nov 08, 2019 10:43 pm

garlandwhizzer wrote:
Thu Nov 07, 2019 7:51 pm
We're seeing the other side of long term bonds today. They've had quite a run over the last 37 years and investors are in love with them for returns and diversification. LTB demonstrated today one of their potential drawbacks, increased volatility. Today in the US, Europe, and Japan there is hope that a trade deal will get done including reduced tariffs on both sides. Also hope that aggressive monetary policy stimulus worldwide may stimulate global economic growth. The risk of recession seems much diminished at present. Interestingly, US stocks had only modest gains while LT bonds suffered much greater losses. Why the disparity? Perhaps all this good global growth news has some considering the very slight risk of the return of inflation which in recent months seemed impossible. The slightest microscopic whiff of potential future inflation risk and LT bonds tank for the day. This setback for LT bonds likely won't continue unless we see signs of increasing inflation which is IMO very unlikely but possible.

One reason for picking a bond portfolio that includes multiple durations averaging out to intermediate duration (TBM or barbell) is to reduce volatility. The other is to be prepared for both deflation and inflation. LT works great in deflation, lousy in inflation. It is somewhere between exceedingly hard and impossible to predict accurately whether the risk to fixed income will be deflation or inflation over the next few decades. Investors now are betting on no significant inflation anytime in the future due to secular issues. It makes sense. The bond market believes that which is why LT's are near all time low yields and why they got hit so hard today with just the slightest pinch of inflation fear.

Garland Whizzer
I love how you have characterized the current situation. In my mind bonds are supposed to be stability focused; that is why I do not agree with the risk parity concept of making bond to the same degree of risk as stocks. It seemed to me if one employs bond risk parity, that approach would have to be undone as part of the glide path toward retirement. I agree the total bond market can cater to a greater variation of inflation situations compared to long term Treasury.
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Re: Long Term Bonds getting killed today

Post by nedsaid » Fri Nov 08, 2019 11:18 pm

OnTrack wrote:
Fri Nov 08, 2019 9:42 pm
nedsaid wrote:
Thu Nov 07, 2019 11:14 pm
Well, so much for that inverted yield curve. I think I am going to start a "Long Term Bonds in freefall" thread. Or is that free fall?
There is a "US Bonds in free fall" thread.
viewtopic.php?f=10&t=294453
Yep. I have amazing psychic powers. :wink:
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Re: Long Term Bonds getting killed today

Post by nisiprius » Sat Nov 09, 2019 6:34 am

HEDGEFUNDIE wrote:
Fri Nov 08, 2019 10:13 pm
...Five days of performance is supposed to tell me..:what exactly?...
I don't know. But I don't know what "Long term bonds getting killed today" is supposed to tell us, either.

If someone is following the traditional Boglehead philosophy, bonds are primarily for ballast or stability, not to actively counteract stocks; then "long term bonds getting killed today" doesn't matter because we don't have significant allocations to them.

You are confirming that if you are holding them for the purpose of actively counteracting stocks, it still doesn't matter, because the interaction you care about is on a much longer time scale than one day, or five.

So the question is: who should care about "long term bonds getting killed today," and why?
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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Re: Long Term Bonds getting killed today

Post by grok87 » Sat Nov 09, 2019 7:14 am

Longtermgrowth wrote:
Thu Nov 07, 2019 11:11 pm
kabob wrote:
Thu Nov 07, 2019 9:20 pm
VCLT is a great Run & Hide a while ETF... One gets a much better than average monthly dividend, plus a good chance of capital gain on recovery of a market slump.
Image
I purchased a significant amt last Nov(with Gvt shutdown looming) ~84/shr - and just had take to the gain when it went over $102 and overbought
That's not really expected with Long Bonds, but it does happen with VCLT.
Sometimes VCLT is a great Wait a While & See place to be when there's a Signifigant market dip....
What do you think of preferred stocks? Rick Ferri recommends ETFs like PFFD for the higher yield over corporates, while having similar behavior, and a good chunk of distributions being qualified dividend income, making it suitable for taxable accounts in some situations.
i would avoid preferreds. you get all the downside risk of equities packaged with the low bond like returns of bonds.

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https://www.goodreads.com/quotes/4857-g ... u-anything
"“Ginny!" said Mr. Weasley, flabbergasted. "Haven't I taught you anything? What have I always told you? Never trust anything that can think for itself if you can't see where it keeps its brain?”

kind of a strained analogy perhaps. but things that appear to be equity but are not-really are not to be trusted.
RIP Mr. Bogle.

grok87
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Re: Long Term Bonds getting killed today

Post by grok87 » Sat Nov 09, 2019 7:22 am

Tyler Aspect wrote:
Fri Nov 08, 2019 10:43 pm
garlandwhizzer wrote:
Thu Nov 07, 2019 7:51 pm
We're seeing the other side of long term bonds today. They've had quite a run over the last 37 years and investors are in love with them for returns and diversification. LTB demonstrated today one of their potential drawbacks, increased volatility. Today in the US, Europe, and Japan there is hope that a trade deal will get done including reduced tariffs on both sides. Also hope that aggressive monetary policy stimulus worldwide may stimulate global economic growth. The risk of recession seems much diminished at present. Interestingly, US stocks had only modest gains while LT bonds suffered much greater losses. Why the disparity? Perhaps all this good global growth news has some considering the very slight risk of the return of inflation which in recent months seemed impossible. The slightest microscopic whiff of potential future inflation risk and LT bonds tank for the day. This setback for LT bonds likely won't continue unless we see signs of increasing inflation which is IMO very unlikely but possible.

One reason for picking a bond portfolio that includes multiple durations averaging out to intermediate duration (TBM or barbell) is to reduce volatility. The other is to be prepared for both deflation and inflation. LT works great in deflation, lousy in inflation. It is somewhere between exceedingly hard and impossible to predict accurately whether the risk to fixed income will be deflation or inflation over the next few decades. Investors now are betting on no significant inflation anytime in the future due to secular issues. It makes sense. The bond market believes that which is why LT's are near all time low yields and why they got hit so hard today with just the slightest pinch of inflation fear.

Garland Whizzer
I love how you have characterized the current situation. In my mind bonds are supposed to be stability focused; that is why I do not agree with the risk parity concept of making bond to the same degree of risk as stocks. It seemed to me if one employs bond risk parity, that approach would have to be undone as part of the glide path toward retirement. I agree the total bond market can cater to a greater variation of inflation situations compared to long term Treasury.
what about long term tips though? such as the pimco fund LTPZ? that is down 2.5% over the past month. while long treasuries (EDV) is down 8.6% over the same time period.

I own a lot of of long term tips for which LTPZ is a good proxy. if LTPZ fell 10% i wouldn't care. because my long term tips are part of my liabilty matching portfolio. so if they are down 10% then so is the cost of the inflation protected annuity for which i am buying them to fund the future cost of.
as discussed here.
viewtopic.php?t=245377
cheers,
grok
RIP Mr. Bogle.

Lee_WSP
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Re: Long Term Bonds getting killed today

Post by Lee_WSP » Sat Nov 09, 2019 9:15 am

They're just reverting to their pre-May tweet levels.

mary1492
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Re: Long Term Bonds getting killed today

Post by mary1492 » Sat Nov 09, 2019 9:34 am

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hdas
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Re: Long Term Bonds getting killed today

Post by hdas » Sat Nov 09, 2019 10:44 am

nisiprius wrote:
Sat Nov 09, 2019 6:34 am

So the question is: who should care about "long term bonds getting killed today," and why?
The LETF crowd. A chunk of this years gains was gone this week. Cheers :greedy
"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

HEDGEFUNDIE
Posts: 3669
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Re: Long Term Bonds getting killed today

Post by HEDGEFUNDIE » Sat Nov 09, 2019 11:17 am

hdas wrote:
Sat Nov 09, 2019 10:44 am
nisiprius wrote:
Sat Nov 09, 2019 6:34 am

So the question is: who should care about "long term bonds getting killed today," and why?
The LETF crowd. A chunk of this years gains was gone this week. Cheers :greedy
I went from +54% to +48%.

Yawn.

kabob
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Location: Loudon, Tn

Re: Long Term Bonds getting killed today

Post by kabob » Sat Nov 09, 2019 3:27 pm

hdas wrote:
Fri Nov 08, 2019 10:30 pm
nisiprius wrote:
Fri Nov 08, 2019 8:39 pm
Among people in the forum advocating the use of long-term bond funds, the commonest reason given is negative correlation with stocks. They feel confident in the persistence of negative correlation between stocks and bonds, so they use the longest-term bond vehicles they can find, so they can get the largest fluctuations and cancel out the largest possible amount of stock fluctuations.

To the extent this is reliable, it should work both ways. In such a portfolio, when there are losses in long-term bonds, they ought to be offset by gains in stocks, so long-term-bond dips shouldn't be a big concern.
+1 - Very Good Explanation! And Right on - the inverse relation between Stocks and Bonds in action...
While we all like buy and hold, that doesn't mean go down with the ship - Make Lemonade - I like CramAmerica, There's always a BullMarket Somewhere!
And the vehicle that gets me there is Stockcharts - ChartSchool...
"Developed by Gerald Appel in the late seventies, the Moving Average Convergence/Divergence oscillator (MACD) is one of the simplest and most effective momentum indicators available. The MACD turns two trend-following indicators, moving averages, into a momentum oscillator by subtracting the longer moving average from the shorter one. As a result, the MACD offers the best of both worlds: trend following and momentum. The MACD fluctuates above and below the zero line as the moving averages converge, cross and diverge. Traders can look for signal line crossovers, centerline crossovers and divergences to generate signals. Because the MACD is unbounded, it is not particularly useful for identifying overbought and oversold levels.."
Read the full article in full and reap the benefits in your own allocation adjustments: https://school.stockcharts.com/doku.php ... gence_macd

During that looming Gvt shutdown the Market gave Very Clear and Distinctive Confirming Signals!
Simply, When the MACD plunges down drastically (called a Bear cross) along with other confirming Indicators) - Get Outa There!
Nobody wants anything to do with a Weekly MACD going negative (below the Zero line) - except waiting/watching for a confirmed Bull Cross to appear.
And, Yes - I saw 2008 commin - was easy if ya go the ChartSchool...
When the Market(SP500) Weekly MACD is runnin above the Zero line I'm riddin the Boglehead Gravy train - Under the Zero line I'm Actively managing to avoid the Bear! (perhaps raise your Bond Allocation)

Checkout StockCharts - Chartschool - You'll Profit from it...

Scooter57
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Re: Long Term Bonds getting killed today

Post by Scooter57 » Sat Nov 09, 2019 4:10 pm

mary1492 wrote:
Sat Nov 09, 2019 9:34 am
If you're purchasing bonds for the income stream, likely holding until maturity, then the volatility should be of absolutely no concern whatsoever. All that the volatility will do is change the value of the bonds as shown in your portfolio daily. When you purchased the bond, you knew everything about it, and were obviously satisfied with the yield to maturity. So again, what happens to the bond price between now and maturity should be of no concern whatsoever.

Regardless of the price you paid for any particular bond, regardless of how much it pays, at maturity you are going to collect 100.0. Between today and the day it matures, regardless of the path taken, it's going to trend to 100.0. It's no different with brokered CDs and treasury bonds of all flavors.
Most Bogleheads don't buy individual bonds, which are what you are describing but bond funds, which do not work that way. In a long-lasting rising rate environment bond funds may not return 100% of what you put in at any time you could count on in advance. When rates keep rising the bonds that the fund holds take a while to mature and the new bonds bought to replace those are then worth less as rates continue to rise. If we had a 35 year stint of rising rates to counter the 35 years of falling rates we have just lived through, you would lose money on bond funds. Many young investors don't seem to understand that the apparent safety of bond funds derives from the fact that average annual rates were either stable or steady dropping throughout the entire time that bond funds have been available to the average investor. And that throughout most of this time, bonds were paying closer to 7% than the 1 or 2% they flirt with now. When a bond pays 7% it doubles your principle in just 10 years. When it pays. 1.5% t doubles your principal in 48 years. That makes it much harder to recover from decreases in NAV than it was in the past.

Also, with individual bonds, you are not guaranteed to collect face value at maturity. These bonds are loans and there is always a possibility the borrower won't pay you back. Historically it hasn't happened very frequently with the bonds of US companies, but when a company goes bankrupt via Chapter 7, bondholders may get nothing. And if they reorganize (Chapter 11) they may only get a partial payment. Default or dramatic drops in value can happen with government bonds too, when governments are overthrown or collapse. Puerto Rican bonds and Czarist Russian and Confederate bonds are the most obvious examples. International bond funds may hold bonds issued by countries that do not have a very stable governments or are at risk of their governments being overthrown.

mary1492
Posts: 60
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Re: Long Term Bonds getting killed today

Post by mary1492 » Sun Nov 10, 2019 5:48 am

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Scooter57
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Re: Long Term Bonds getting killed today

Post by Scooter57 » Sun Nov 10, 2019 3:54 pm

If you are purchasing individual bonds for the income stream and holding to maturity, high yielding Credit Union CDs have been a better choice this past year, with rates that have exceeded intermediate term bonds and no risk. They also avoid reinvestment risk for the dividends as they can be automatically reinvested. If you stick to very sound companies you are not getting top rates with corporates.

But dont drlude yourself. The past performance of bonds does not guarantee future performance. Lehman Brothers had fine past performance until the Financial Crisis in 2008. Fraud can rear its ugly head in companies rated very highly.

mary1492
Posts: 60
Joined: Thu Oct 17, 2019 3:02 am

Re: Long Term Bonds getting killed today

Post by mary1492 » Sun Nov 10, 2019 4:08 pm

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RAchip
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Re: Long Term Bonds getting killed today

Post by RAchip » Sun Nov 10, 2019 4:31 pm

It is certainly true that if you buy individual bonds (I do) intending to hold to maturity you know exactly what you will get (ignoring the minimal default risk) — the designated interest payments plus return of par value at maturity.

But I dont think its fair to say that you cant “loose money” doing this. If market interest rates rise you miss out on those higher rates; you are locked into your lower rate bond. You are not getting the market rate of return that you could otherwise get. In that sense, you loose money. This is why longer term bonds are risky even if you buy with the intent of holding to maturity.

mary1492
Posts: 60
Joined: Thu Oct 17, 2019 3:02 am

Re: Long Term Bonds getting killed today

Post by mary1492 » Sun Nov 10, 2019 5:34 pm

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Last edited by mary1492 on Wed Dec 04, 2019 10:18 pm, edited 1 time in total.

HEDGEFUNDIE
Posts: 3669
Joined: Sun Oct 22, 2017 2:06 pm

Re: Long Term Bonds getting killed today

Post by HEDGEFUNDIE » Sun Nov 10, 2019 5:42 pm

mary1492 wrote:
Sun Nov 10, 2019 5:34 pm
RAchip wrote:
Sun Nov 10, 2019 4:31 pm
It is certainly true that if you buy individual bonds (I do) intending to hold to maturity you know exactly what you will get (ignoring the minimal default risk) — the designated interest payments plus return of par value at maturity.

But I dont think its fair to say that you cant “loose money” doing this. If market interest rates rise you miss out on those higher rates; you are locked into your lower rate bond. You are not getting the market rate of return that you could otherwise get. In that sense, you loose money. This is why longer term bonds are risky even if you buy with the intent of holding to maturity.
There is a significant difference between "losing money" and "not making as much as you might have". "Not making as much as you might have" is what you are describing.
Actually there is no difference. This is called reinvestment risk. It is an opportunity cost, and like all other opportunity costs, it is as real as an actual out-of-pocket cost.

Any belief to the contrary is pure cognitive bias.

To use your CD example, there are such as things as “no-penalty CDs” that allow you break your CD early. Would you expect a regular CD to pay more or less interest than a no-penalty CD of the same maturity? More, of course, to compensate you for the reinvestment risk.
Last edited by HEDGEFUNDIE on Sun Nov 10, 2019 5:48 pm, edited 1 time in total.

RAchip
Posts: 382
Joined: Sat May 07, 2016 7:31 pm

Re: Long Term Bonds getting killed today

Post by RAchip » Sun Nov 10, 2019 5:46 pm

mary1492 wrote:
Sun Nov 10, 2019 5:34 pm
RAchip wrote:
Sun Nov 10, 2019 4:31 pm
It is certainly true that if you buy individual bonds (I do) intending to hold to maturity you know exactly what you will get (ignoring the minimal default risk) — the designated interest payments plus return of par value at maturity.

But I dont think its fair to say that you cant “loose money” doing this. If market interest rates rise you miss out on those higher rates; you are locked into your lower rate bond. You are not getting the market rate of return that you could otherwise get. In that sense, you loose money. This is why longer term bonds are risky even if you buy with the intent of holding to maturity.
There is a significant difference between "losing money" and "not making as much as you might have". "Not making as much as you might have" is what you are describing.

The case is no different than if you buy a 5 year CD, short term interest rates rise, and a year down the road 4 year CDs are paying more than your 5 year. You aren't losing anything. You purchased a security with a yield guaranteed over some period of time. Now, if interest rates went down, would you say that you were "making money"...because you already own the higher yielding bond/CD, rates fell, and yours is paying more than current rates? If your stance is that you were losing money with rising rates, then surely you'd have to likewise say that you were making money if rates went down. However, I don't agree with that - because when purchasing the bond/CD as you stated in your first paragraph - you knew everything that moment ... exactly how much you'd collect, the dates you'd be paid, and the date you receive face value back. You entered a contract - you agreed with the borrower how much you'd be making at the onset. There really is no making/losing money (as you described) unless there is a default and that contract is broken.

I mostly agree with you. You know what return you are buying when you buy and hold a bond to maturity. So “losing money” is not the right term. If interest rates rise you made a less than optimal decision buying a bond (especially a long term one) and holding to maturity. I do not agree that bond price fluctuations after purchase are irrelevant in that scenario. You should keep an eye on them because at some point it may make sense to sell and reinvest if rates change significantly.

mary1492
Posts: 60
Joined: Thu Oct 17, 2019 3:02 am

Re: Long Term Bonds getting killed today

Post by mary1492 » Sun Nov 10, 2019 5:58 pm

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