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

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000
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Bonds: What Are They Doing? Are They Doing Things?? Let's Find Out!

Post by 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.
--

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

Image
Last edited by 000 on Tue May 03, 2022 4:11 pm, edited 1 time in total.
jarjarM
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Re: Bonds in free fall

Post by jarjarM »

I take this as LTT reloading so that they can be ready for another stock downfall. :twisted:
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Re: Bonds in free fall

Post by 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.
Last edited by midareff on Tue Feb 16, 2021 6:33 pm, edited 1 time in total.
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Re: Bonds in free fall

Post by Marseille07 »

I regret having had LTTs, just took a loss. Tax-loss harvesting at work.
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Re: Bonds in free fall

Post by 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...
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Re: Bonds in free fall

Post by Marseille07 »

anon_investor wrote: Tue Feb 16, 2021 6:34 pm 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.
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Re: Bonds in free fall

Post by 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.
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Re: Bonds in free fall

Post by anon_investor »

Marseille07 wrote: Tue Feb 16, 2021 6:37 pm
anon_investor wrote: Tue Feb 16, 2021 6:34 pm 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...
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Re: Bonds in free fall

Post by anon_investor »

SouthernFIRE wrote: Tue Feb 16, 2021 6:41 pm 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.
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Re: Bonds in free fall

Post by arcticpineapplecorp. »

000 wrote: Tue Feb 16, 2021 6:16 pm Is this the real thing or do bonds have another rally left in them?

Image
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):

Image

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.
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Re: Bonds in free fall

Post by 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.
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Re: Bonds in free fall

Post by 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.
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Re: Bonds in free fall

Post by NoRegret »

000 wrote: Tue Feb 16, 2021 6:16 pm Is this the real thing or do bonds have another rally left in them?

Image
BHs think long term. Maybe you should extend the chart to 5-10 years.
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Re: Bonds in free fall

Post by 000 »

NoRegret wrote: Tue Feb 16, 2021 7:14 pm BHs think long term. Maybe you should extend the chart to 5-10 years.
This could be the start of the next long term.
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Re: Bonds in free fall

Post by KlangFool »

OP,


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


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Re: Bonds in free fall

Post by NoRegret »

000 wrote: Tue Feb 16, 2021 7:19 pm
NoRegret wrote: Tue Feb 16, 2021 7:14 pm 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
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Re: Bonds in free fall

Post by 000 »

NoRegret wrote: Tue Feb 16, 2021 7:25 pm
000 wrote: Tue Feb 16, 2021 7:19 pm
NoRegret wrote: Tue Feb 16, 2021 7:14 pm 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.
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Re: Bonds in free fall

Post by anon_investor »

000 wrote: Tue Feb 16, 2021 7:31 pm
NoRegret wrote: Tue Feb 16, 2021 7:25 pm
000 wrote: Tue Feb 16, 2021 7:19 pm
NoRegret wrote: Tue Feb 16, 2021 7:14 pm 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).
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Re: Bonds in free fall

Post by 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.
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Re: Bonds in free fall

Post by 000 »

KlangFool wrote: Tue Feb 16, 2021 7:24 pm 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.
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Re: Bonds in free fall

Post by 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.
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Re: Bonds in free fall

Post by 000 »

Seasonal wrote: Tue Feb 16, 2021 7:35 pm 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.
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Re: Bonds in free fall

Post by whodidntante »

If LTTs get cut in half maybe I'll buy some.
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Re: Bonds in free fall

Post by Seasonal »

000 wrote: Tue Feb 16, 2021 7:40 pm
Seasonal wrote: Tue Feb 16, 2021 7:35 pm 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.
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Re: Bonds in free fall

Post by Impatience »

My TMF is getting clobbered 8-)
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Re: Bonds in free fall

Post by 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.
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Re: Bonds in free fall

Post by Triple digit golfer »

Pudu wrote: Tue Feb 16, 2021 7:51 pm 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.
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Re: Bonds in free fall

Post by nisiprius »

You find this alarming?

Source

Image
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Re: Bonds in free fall

Post by Blue456 »

Pudu wrote: Tue Feb 16, 2021 7:51 pm 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%.
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Re: Bonds in free fall

Post by anon_investor »

Pudu wrote: Tue Feb 16, 2021 7:51 pm 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.
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Re: Bonds in free fall

Post by DB2 »

KlangFool wrote: Tue Feb 16, 2021 7:24 pm 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.
Last edited by DB2 on Tue Feb 16, 2021 8:00 pm, edited 1 time in total.
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Re: Bonds in free fall

Post by Pudu »

Triple digit golfer wrote: Tue Feb 16, 2021 7:52 pm I would leave it right where it is if you need the money in 6-8 months.
anon_investor wrote: Tue Feb 16, 2021 7:55 pm For 6-8 months you should not be buying any bonds, especially not long term treasury bonds.
Blue456 wrote: Tue Feb 16, 2021 7:55 pm Put it into no high yield savings, you will get 0.5%.
Roger that, thanks for the advice!
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Re: Bonds in free fall

Post by 000 »

nisiprius wrote: Tue Feb 16, 2021 7:53 pm You find this alarming?
I find it interesting.
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Re: Bonds in free fall

Post by KlangFool »

DB2 wrote: Tue Feb 16, 2021 7:58 pm
KlangFool wrote: Tue Feb 16, 2021 7:24 pm 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.

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Re: Bonds in free fall

Post by 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.
Last edited by Marseille07 on Tue Feb 16, 2021 8:18 pm, edited 1 time in total.
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Re: Bonds in free fall

Post by Munir »

KlangFool wrote: Tue Feb 16, 2021 7:24 pm OP,


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


KlangFool
VBTLX fell 0.44% today.
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Re: Bonds in free fall

Post by KlangFool »

Munir wrote: Tue Feb 16, 2021 8:17 pm
KlangFool wrote: Tue Feb 16, 2021 7:24 pm 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.


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Re: Bonds in free fall

Post by Triple digit golfer »

Marseille07 wrote: Tue Feb 16, 2021 8:14 pm 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?
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Re: Bonds in free fall

Post by Triple digit golfer »

KlangFool wrote: Tue Feb 16, 2021 8:19 pm
Munir wrote: Tue Feb 16, 2021 8:17 pm
KlangFool wrote: Tue Feb 16, 2021 7:24 pm 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!
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Re: Bonds in free fall

Post by 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.
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Re: Bonds in free fall

Post by Dominic »

nisiprius wrote: Tue Feb 16, 2021 7:53 pm You find this alarming?

Source

Image
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.
000 wrote: Tue Feb 16, 2021 8:21 pm 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.
Last edited by Dominic on Tue Feb 16, 2021 8:23 pm, edited 1 time in total.
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Re: Bonds in free fall

Post by Marseille07 »

Triple digit golfer wrote: Tue Feb 16, 2021 8:20 pm
Marseille07 wrote: Tue Feb 16, 2021 8:14 pm 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.
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Re: Bonds in free fall

Post by 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!
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Re: Bonds in free fall

Post by drk »

DB2 wrote: Tue Feb 16, 2021 7:58 pm 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?
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Re: Bonds in free fall

Post by 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.


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Re: Bonds in free fall

Post by 000 »

Dominic wrote: Tue Feb 16, 2021 8:22 pm 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.
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Re: Bonds in free fall

Post by 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.
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Re: Bonds in free fall

Post by 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.
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Re: Bonds in free fall

Post by Marseille07 »

It's rough. Even my diamond hands got burned holding bonds.
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Re: Bonds in free fall

Post by 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.
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