Bonds: What Are They Doing? Are They Doing Things?? Let's Find Out!

[000]

Edit May 03, 2022: Changed title from "Bonds in free fall" to "Bonds: What Are They Doing? Are They Doing Things?? Let's Find Out!" as suggested here.
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Is this the real thing or do bonds have another rally left in them?

[jarjarM]

I take this as LTT reloading so that they can be ready for another stock downfall.

[midareff]

The few who know aren't telling. The rest of us lambs are headed you know where. For the folks who were so hot to ditch munis for treasuries today VTEB was -0.20% while VGLT was -1.38%. As smart as you think you are Mr. Market will always be smarter.

[Marseille07]

I regret having had LTTs, just took a loss. Tax-loss harvesting at work.

[anon_investor]

The fact that the 30 year treasury yield is 2.08% today, the highest it has been since 2/12/2020 (2.09%), is crazy.

One year later it is as if nothing happened...

[Marseille07]

The fact that the 30 year treasury yield is 2.08% today, the highest it has been since 2/12/2020 (2.09%), is crazy.

One year later it is as if nothing happened...

I'm devastated. Feeling like I loaded up 2 years worth of emergency food and they went bad before having any. I didn't expect to lose sleep over bonds crashing.

[SouthernFIRE]

The current situation with bonds is an interesting case study on boglehead principals. Do you adjust strategy based on rock bottom yields and increasing inflation expectations or stay the course with current allocation?

I am not a market timer. But I also have no interest in owning bonds at yields that effectively guarantee a negative real return.

[anon_investor]

The fact that the 30 year treasury yield is 2.08% today, the highest it has been since 2/12/2020 (2.09%), is crazy.

One year later it is as if nothing happened...

I'm devastated. Feeling like I loaded up 2 years worth of emergency food and they went bad before having any. I didn't expect to lose sleep over bonds crashing.

I completely dumped all my LTT (some for a small loss) before Summer 2020 and bought equities. Instead of reloading LTT in 2020, I bought I Bonds. As LTT yield keeps going up they start looking more attractive...

[anon_investor]

The current situation with bonds is an interesting case study on boglehead principals. Do you adjust strategy based on rock bottom yields and increasing inflation expectations or stay the course with current allocation?

I am not a market timer. But I also have no interest in owning bonds at yields that effectively guarantee a negative real return.

I agree, I have been buying I Bonds instead, but if LTT yields keep increasing, they their real yield might become positive again.

[arcticpineapplecorp.]

Is this the real thing or do bonds have another rally left in them?

bonds are for stability, not money making (that is what stocks are for). Using the time period you did (May 2020-present) this is the difference between total bond market index fund and EDV (I know they're not the same, but the point is long term bonds (or treasuries) are more risky than short/intermediate, which is what the chart shows):



source:
http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

some people like long term bonds. perhaps that was only when rates fell.

stocks help you eat well. bonds (the right duration) help you sleep well.

[dbr]

Good grief. You would expect the standard deviation of annual returns of EDV to be maybe 20%. That's like the volatility of the total stock index. So gaining or losing 20% or so in a year is not free fall but natural to the beast. The one year return has been +24%. Getting a 20% downturn along the way would be routine.

Behavior like this might be good for adding in with a high stock portfolio because the return is high and the volatility is high and the correlation to stocks might even be negative, so you get diversification benefit in a high risk, high return portfolio.

Holding EDV because someone wanted a bond fund would probably be a mistake.

[slicendice]

As a long term investor, I prefer this rather than TLT going to 200. Do the reverse of last March,sell stocks and rebalance per the IPS. The volatility of the asset is one of the main reasons I own these bonds.

[NoRegret]

Is this the real thing or do bonds have another rally left in them?

BHs think long term. Maybe you should extend the chart to 5-10 years.

[000]

BHs think long term. Maybe you should extend the chart to 5-10 years.

This could be the start of the next long term.

[KlangFool]

OP,


Please change the title of your topic to LTT bonds in free fall. VBTLX is doing fine.


KlangFool

[NoRegret]

BHs think long term. Maybe you should extend the chart to 5-10 years.

This could be the start of the next long term.

viewtopic.php?p=5810716#p5810716

[000]

BHs think long term. Maybe you should extend the chart to 5-10 years.

This could be the start of the next long term.

viewtopic.php?p=5810716#p5810716

Thanks, I appreciate that, but after studying IVOL I'm not confident I understand it well enough to invest.

[anon_investor]

BHs think long term. Maybe you should extend the chart to 5-10 years.

This could be the start of the next long term.

viewtopic.php?p=5810716#p5810716

Thanks, I appreciate that, but after studying IVOL I'm not confident I understand it well enough to invest.

Look into Series I US Savings Bonds (aka I Bonds).

[Seasonal]

Reinvest dividends, wait a period longer than the duration and you're better off for the "free fall". This is a good thing about bonds. Higher rates (lower prices) is good news, not bad.

It's only a problem if you can't wait longer than the duration, but you shouldn't be in bonds whose duration is longer than your horizon.

[000]

Please change the title of your topic to LTT bonds in free fall. VBTLX is doing fine.

I think it would be surprising if long yields continue to rise but the other parts of the yield curve don't budge.

[000]

Also interesting is the fact that junk bond yields aren't moving even though LTT yields are. Vanguard High-Yield Corporate is flat today and Long Term Corporate funds are moving less than Long Term Treasury. Could be a sign that a rush from safety is beginning.

[000]

Reinvest dividends, wait a period longer than the duration and you're better off for the "free fall". This is a good thing about bonds. Higher rates (lower prices) is good news, not bad.

It's only a problem if you can't wait longer than the duration, but you shouldn't be in bonds whose duration is longer than your horizon.

Correct only if you are matching a nominal liability in the future.

My allocation to bonds is around 5% so I'm more interested in this from a technical angle.

[whodidntante]

If LTTs get cut in half maybe I'll buy some.

[Seasonal]

Reinvest dividends, wait a period longer than the duration and you're better off for the "free fall". This is a good thing about bonds. Higher rates (lower prices) is good news, not bad.

It's only a problem if you can't wait longer than the duration, but you shouldn't be in bonds whose duration is longer than your horizon.

Correct only if you are matching a nominal liability in the future.

Whether or not you are matching a nominal liability, if you wait a period equal to the duration after a price decrease = rate increase, you will be better off in nominal terms if holding nominal bonds and will be better off in real terms if holding real bonds, such as TIPS. This assumes no other rate change but, if so, repeat.

[Impatience]

My TMF is getting clobbered

[Pudu]

Is it a good time to buy them?

I'm still 100% stock (I'm in my 30s), but I just sold about 25% of my portfolio to start building a house later this year. Probably a bit earlier than I could, but I'm slightly worried about another crash right before I need the money.

Now I'm sitting on a pile of cash and wondering if I should park some into bonds for 6-8 months or is it a bad idea to do short-term.

[Triple digit golfer]

Is it a good time to buy them?

I'm still 100% stock (I'm in my 30s), but I just sold about 25% of my portfolio to start building a house later this year. Probably a bit earlier than I could, but I'm slightly worried about another crash right before I need the money.

Now I'm sitting on a pile of cash and wondering if I should park some into bonds for 6-8 months or is it a bad idea to do short-term.

I would leave it right where it is if you need the money in 6-8 months.

[nisiprius]

You find this alarming?

Source

[Blue456]

Is it a good time to buy them?

I'm still 100% stock (I'm in my 30s), but I just sold about 25% of my portfolio to start building a house later this year. Probably a bit earlier than I could, but I'm slightly worried about another crash right before I need the money.

Now I'm sitting on a pile of cash and wondering if I should park some into bonds for 6-8 months or is it a bad idea to do short-term.

Put it into no high yield savings, you will get 0.5%.

[anon_investor]

Is it a good time to buy them?

I'm still 100% stock (I'm in my 30s), but I just sold about 25% of my portfolio to start building a house later this year. Probably a bit earlier than I could, but I'm slightly worried about another crash right before I need the money.

Now I'm sitting on a pile of cash and wondering if I should park some into bonds for 6-8 months or is it a bad idea to do short-term.

For 6-8 months you should not be buying any bonds, especially not long term treasury bonds.

[DB2]

OP,


Please change the title of your topic to LTT bonds in free fall. VBTLX is doing fine.


KlangFool

It's already down -1.74% YTD. For this type of fund in such a short period of time it seems high.

[Pudu]

I would leave it right where it is if you need the money in 6-8 months.

For 6-8 months you should not be buying any bonds, especially not long term treasury bonds.

Put it into no high yield savings, you will get 0.5%.

Roger that, thanks for the advice!

[000]

You find this alarming?

I find it interesting.

[KlangFool]

OP,


Please change the title of your topic to LTT bonds in free fall. VBTLX is doing fine.


KlangFool

It's already down -1.74% YTD. For this type of fund in such a short period of time it seems high.

When it is -30%, you can this as free fall. Anything less than -10% is not a big deal.

KlangFool

[Marseille07]

I find it alarming. Already ran to the hills!

I'm learning that holding a hedge carries its own set of challenges. My risk tolerance is a lot shallower because of devastation that it's collapsing as equities are soaring.

[Munir]

OP,


Please change the title of your topic to LTT bonds in free fall. VBTLX is doing fine.


KlangFool

VBTLX fell 0.44% today.

[KlangFool]

OP,


Please change the title of your topic to LTT bonds in free fall. VBTLX is doing fine.


KlangFool

VBTLX fell 0.44% today.

And, why is that a big deal?

It is not.


KlangFool

[Triple digit golfer]

I find it alarming. Already ran to the hills!

I'm learning that holding a hedge carries its own set of challenges. My risk tolerance is a lot shallower because of devastation that it's collapsing as equities are soaring.

Isn't that the point? Negative correlations and all. Why didn't you rebalance?

[Triple digit golfer]

OP,


Please change the title of your topic to LTT bonds in free fall. VBTLX is doing fine.


KlangFool

VBTLX fell 0.44% today.

And, why is that a big deal?

It is not.


KlangFool

Has Hell frozen over? I agree with you!

[000]

Losing 0.44% in a single day and 1.74% YTD on a fund with an annual yield of 1.10% seems like a bad risk-reward tradeoff to me.

Meanwhile, cash in a HYSA is yielding 0.50% with no principal risk.

[Dominic]

You find this alarming?

Source

It's a pretty staggering decline for long term Treasuries, but (hopefully) everyone who owns those knew what they were getting into. I knew that I was taking on the risk of a steep short term decline when I bought EDV. Didn't expect yields to climb this quickly, but oh well. Higher yields will pay off eventually.

For the total bond crowd, the short end of the Treasury yield curve and corporate bonds are keeping things steady.

Losing 0.44% in a single day and 1.74% YTD on a fund with an annual yield of 1.10% seems like a bad risk-reward tradeoff to me.

Meanwhile, cash in a HYSA is yielding 0.50% with no principal risk.

And if the US's yield curve starts looking like Japan's or Germany's, then total bond will be up significantly, and HYSAs will be paying nothing. Reinvestment risk is the other side of principal risk.

[Marseille07]

I find it alarming. Already ran to the hills!

I'm learning that holding a hedge carries its own set of challenges. My risk tolerance is a lot shallower because of devastation that it's collapsing as equities are soaring.

Isn't that the point? Negative correlations and all. Why didn't you rebalance?

It is the point. But it dawned on me I don't really need bonds at all. Instead of rebalancing, I just dumped it and bought more equities. I'll ride out a crash should there be one.

[MindBogler]

This isn't really abnormal behavior for EDV. Even with the supposed bloodbath in bonds, my overall portfolio is up on the day. If this trend continues much longer, I will hit a band and need to rebalance from stocks back into EDV. It seems to be working as intended!

[drk]

It's already down -1.74% YTD. For this type of fund in such a short period of time it seems high.

Why are you looking at YTD? The fund's average duration is over six years, so why should six weeks mean anything?

[KlangFool]

Folks,

Some folks believe that LTT has a negative correlation with the stock. Hence, it will be much more volatile and useful to rebalance between LTT and Total Stock Market Index / S&P 500. And, the volatility had shown up. Why is this a problem? Isn't this the goal of LTT in the first place?

As for boring folks like me, I am just using VBTLX to dampen the volatility of the stock. And, it achieved its goal too.


To each its own. Please remember why you invest in the LTT.


KlangFool

[000]

And if the US's yield curve starts looking like Japan's or Germany's, then total bond will be up significantly, and HYSAs will be paying nothing. Reinvestment risk is the other side of principal risk.

This is likely true, though HYSA has a yield premium over T-bills, i.e. a better risk-adjusted return.

[drk]

I guess I understand why folks are concerned, but seeing LTT yields go higher than my effective mortgage rate and approach the sticker-price rate has me licking my chops.

[edgeagg]

If you don't like bonds, don't buy 'em but at least know what they are for if you do. I think that Nisiprius is dead-on. On to ignoring this clickbaity thread.

[Marseille07]

It's rough. Even my diamond hands got burned holding bonds.

[000]

I have trouble understanding the argument that long term interest rate movements aren't relevant when long term interest rates have been widely cited as a justification for stock valuations.

When LT rates are low, we hear that stocks are fairly valued due to low LT rates.

When LT rates creep up, we hear that LT rates don't matter unless you have an individual position in LT bonds.