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

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

Post by fredflinstone » Thu Sep 05, 2019 5:21 am

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

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

With Vanguard's High Div Yield Idx funds you can get 3.12% on the US stock fund and 4.43% on the foreign fund. Also these pay qualified dividends and will most likely grow around 6%-8% per year, on average.
Bonds are not stocks and stocks are not bonds. They are two completely different types of assets. I think for most people it's good to own both and I think it's a mistake to replace one with the other simply because one has a higher yield than the other at the moment.

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

Post by Wiggums » Thu Sep 05, 2019 7:51 am

I agree. There are other fixed income type investments you can use. But you shouldn’t substitute bonds with stocks.

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

Post by JoMoney » Thu Sep 05, 2019 8:30 am

I have no idea if the we've reached peak bonds or not. Interest rates have gone a lot further down, and stayed down longer, than I ever thought they would. It's been my experience that when the market has gone beyond what I consider reasonable, it goes even further just to show me how wrong I was.
Several years back I moved out of my short-term bond fund that had a 2-3 year duration, and have pretty much been using money markets and savings bonds since.... but even that's limited as my portfolio is predominately stocks (>90%)
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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

Post by cdu7 » Thu Sep 05, 2019 9:44 am

Hector wrote:
Wed Sep 04, 2019 10:11 pm
cdu7 wrote:
Wed Sep 04, 2019 9:38 pm
Oh my god, I'm dumping all my bonds now!

Just kidding, I wouldn't even pay attention to the bond markets. Stay the course.
What is stay the course in terms of bond?
Choose a bond fund you feel comfortable with over the long term and ignore it.

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

Post by Hector » Thu Sep 05, 2019 11:36 am

cdu7 wrote:
Thu Sep 05, 2019 9:44 am
Hector wrote:
Wed Sep 04, 2019 10:11 pm
cdu7 wrote:
Wed Sep 04, 2019 9:38 pm
Oh my god, I'm dumping all my bonds now!

Just kidding, I wouldn't even pay attention to the bond markets. Stay the course.
What is stay the course in terms of bond?
Choose a bond fund you feel comfortable with over the long term and ignore it.
What's wrong with individual bonds?

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

Post by stlutz » Thu Sep 05, 2019 11:40 am

Looks like to bubble burst today. So it's too late now.

:D

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

Post by CnC » Thu Sep 05, 2019 12:04 pm

The problem is there is no safe Haven right now.

Stocks are up and doing very well everyone seems to think they're screaming for a correction not exactly safe.

Bonds are yielding absolute trash. Locking in interest rates at near historical lows is not exactly safe either.

Bitcoin is a joke that could be $100,000 or $100 next year.

Gold is still down from its last bubble. housing market has recovered but now is due for a correction according to the experts.

Take your shot play historical averages and hope for the best.

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

Post by NoviceInvestor2019 » Thu Sep 05, 2019 12:34 pm

CnC wrote:
Thu Sep 05, 2019 12:04 pm
The problem is there is no safe Haven right now.

Stocks are up and doing very well everyone seems to think they're screaming for a correction not exactly safe.

Bonds are yielding absolute trash. Locking in interest rates at near historical lows is not exactly safe either.

Bitcoin is a joke that could be $100,000 or $100 next year.

Gold is still down from its last bubble. housing market has recovered but now is due for a correction according to the experts.

Take your shot play historical averages and hope for the best.
Perhaps I'm being too optimistic here, but the fact that everyone keeps screaming about a correction/recession has given me confidence that it's not close to time to stop investing in equities yet. Their continued growth despite the howling has me inclined to think that they might even be undervalued. Once I start seeing articles coming out about how the bull market will never end and recessions are over, however, that is when I will quickly exit... (or at least rebalance)

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

Post by CnC » Thu Sep 05, 2019 1:10 pm

NoviceInvestor2019 wrote:
Thu Sep 05, 2019 12:34 pm
CnC wrote:
Thu Sep 05, 2019 12:04 pm
The problem is there is no safe Haven right now.

Stocks are up and doing very well everyone seems to think they're screaming for a correction not exactly safe.

Bonds are yielding absolute trash. Locking in interest rates at near historical lows is not exactly safe either.

Bitcoin is a joke that could be $100,000 or $100 next year.

Gold is still down from its last bubble. housing market has recovered but now is due for a correction according to the experts.

Take your shot play historical averages and hope for the best.
Perhaps I'm being too optimistic here, but the fact that everyone keeps screaming about a correction/recession has given me confidence that it's not close to time to stop investing in equities yet. Their continued growth despite the howling has me inclined to think that they might even be undervalued. Once I start seeing articles coming out about how the bull market will never end and recessions are over, however, that is when I will quickly exit... (or at least rebalance)
I'm with you I just don't say it too loud. I'm sitting around 75/25 so I am hoping for the stock market to keep going up

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

Post by GAAP » Mon Sep 09, 2019 5:35 pm

If I were the type to invest only in Treasuries (I'm not) and inclined to act on a fear of a bond bubble (also not me), then I would consider other bonds such as total bond market, global bonds, or perhaps some mix of TIPS. Other than that, I would look for bond alternatives such as annuities (probably deferred).
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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by jdb » Mon Sep 09, 2019 5:45 pm

Yes. Bought more IT tax free Vanguard bond fund today for taxable account. It was on my to do list for asset allocation but it is the title of threads like this which give impetus to my contrarian impulses. Good luck.

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

Post by Hector » Mon Sep 09, 2019 6:08 pm

GAAP wrote:
Mon Sep 09, 2019 5:35 pm
If I were the type to invest only in Treasuries (I'm not) and inclined to act on a fear of a bond bubble (also not me), then I would consider other bonds such as total bond market, global bonds, or perhaps some mix of TIPS. Other than that, I would look for bond alternatives such as annuities (probably deferred).
I don't get it.
I am the type who invest only in treasuries (I also think TIPS are part of treasuries). Why would I invest in total bond market or global bonds? I am not interested in taking risk that comes with total bond market and global bond and that is why I am in treasuries only.

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

Post by robertmcd » Mon Sep 09, 2019 6:13 pm

Rebalanced into VTI from EDV mid August. We are set for a blow off top/new all time highs in US stocks along with higher yields in the short term, but don't let this convince you to abandon treasuries. My prediction is recession arrives sometime between November 2019-November 2020 which will see the 30 yr go sub 1.5%, 10 yr sub 1%, 2 yr negative yielding.

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

Post by frcabot » Mon Sep 09, 2019 7:00 pm

If the Fed is going to continue cutting rates (as expected), then bond prices (especially longer term bonds) will continue to rise and yields will fall. Long term safe bonds, either government (eg. EDV, SPTL, etc.) and quality corporate bonds (eg QLTA, only A to AAA rates) are an excellent place to be.

The bubble is in the lower end of investment grade bonds, which will probably get downgraded in a recession. This will cause a huge fall in those bond prices as all the investment grade bond funds (eg VCIT, VCLT, etc.) will be forced to sell those now-junk-rated bonds at distressed prices.

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

Post by GAAP » Mon Sep 09, 2019 7:01 pm

Hector wrote:
Mon Sep 09, 2019 6:08 pm
GAAP wrote:
Mon Sep 09, 2019 5:35 pm
If I were the type to invest only in Treasuries (I'm not) and inclined to act on a fear of a bond bubble (also not me), then I would consider other bonds such as total bond market, global bonds, or perhaps some mix of TIPS. Other than that, I would look for bond alternatives such as annuities (probably deferred).
I don't get it.
I am the type who invest only in treasuries (I also think TIPS are part of treasuries). Why would I invest in total bond market or global bonds? I am not interested in taking risk that comes with total bond market and global bond and that is why I am in treasuries only.
Most of the talk has been about nominal treasuries specifically, so adding or increasing TIPS allocation would be to replace nominal treasuries.

As for risk, it depends upon what type of risk. Risk of a problem with an individual (USA) economy -- add global. Risk of too low yields, add other options with better yields. Risk of borrower default -- some credit rating agencies actually rate several corporations higher than USA treasuries...

BTW, a number of other sovereign bonds have a top rating also.
“Adapt what is useful, reject what is useless, and add what is specifically your own.” ― Bruce Lee

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

Post by frcabot » Mon Sep 09, 2019 7:08 pm

Also, European bonds are a good place to be despite negative yields as the ECB has committed to buying a ton more bonds, which means that bond prices will continue to rise. That’s why people are buying European bonds: not for the yield, but for the price appreciation due to mandatory/committed purchases. (Also, some pension funds, banks, etc. are required to invest in bonds regardless of yield.)

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

Post by Hector » Tue Sep 10, 2019 11:19 am

frcabot wrote:
Mon Sep 09, 2019 7:08 pm
Also, European bonds are a good place to be despite negative yields as the ECB has committed to buying a ton more bonds, which means that bond prices will continue to rise. That’s why people are buying European bonds: not for the yield, but for the price appreciation due to mandatory/committed purchases. (Also, some pension funds, banks, etc. are required to invest in bonds regardless of yield.)
I would step back and see if I am still buying bonds for same reasons I wanted bond in first place in my portfolio.
I have equity for price appreciation in my portfolio.

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

Post by frcabot » Tue Sep 10, 2019 1:14 pm

Hector wrote:
Tue Sep 10, 2019 11:19 am
frcabot wrote:
Mon Sep 09, 2019 7:08 pm
Also, European bonds are a good place to be despite negative yields as the ECB has committed to buying a ton more bonds, which means that bond prices will continue to rise. That’s why people are buying European bonds: not for the yield, but for the price appreciation due to mandatory/committed purchases. (Also, some pension funds, banks, etc. are required to invest in bonds regardless of yield.)
I would step back and see if I am still buying bonds for same reasons I wanted bond in first place in my portfolio.
I have equity for price appreciation in my portfolio.
I think the reason many sophisticated/institutional investors are doing it is as a hedge, or frankly even because in this crazy era of committed bond buying, the prospective for risk-adjusted returns is pretty decent. European bonds are likely to appreciate with far less volatility because the ECB has committed to buying them, and will buy even more if the European economy continues to deteriorate or underperform (highly likely). When a central bank pretty much comes out and says “Hey, we’re going to keep buying these bonds no matter what,” then you can expect them to keep appreciating in price. I’m not saying it’s a great investment for a personal investor who is following a basic 3 fund strategy, and I don’t own any myself. Nor do I think this makes for great fiscal policy.

But getting back to the question of whether there is a bond bubble and whether it’s going to burst, the answer I think is not anytime soon. IEGA (LON, Euro Government Bond Fund) is up over 9% YTD with very little volatility. Stocks have been far, far more volatile, and European stocks have basically flatlined for the past decade. So from a risk-adjusted perspective, even negative-yielding European bonds can make sense.

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

Post by livesoft » Tue Sep 10, 2019 2:17 pm

Total US Bond Index funds have lost about 1% of their value in the past few days (even accounting for the monthly dividend), so something got pricked.
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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by robertmcd » Tue Sep 10, 2019 2:22 pm

livesoft wrote:
Tue Sep 10, 2019 2:17 pm
Total US Bond Index funds have lost about 1% of their value in the past few days (even accounting for the monthly dividend), so something got pricked.
Buy the dip in bonds just like buy the dip in stocks. They are both going to infinity.

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

Post by Northern Flicker » Wed Sep 11, 2019 1:43 am

Alan Greenspan conveys that soon negative interest rates will spread to the U.S.
Several months ago he was predicting that more robust inflation, in the form of stagflation, would return.
Risk is not a guarantor of return.

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

Post by Hector » Wed Sep 11, 2019 10:10 am

robertmcd wrote:
Tue Sep 10, 2019 2:22 pm
livesoft wrote:
Tue Sep 10, 2019 2:17 pm
Total US Bond Index funds have lost about 1% of their value in the past few days (even accounting for the monthly dividend), so something got pricked.
Buy the dip in bonds just like buy the dip in stocks. They are both going to infinity.
1% down = dip :?:

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

Post by robertmcd » Wed Sep 11, 2019 10:30 am

Hector wrote:
Wed Sep 11, 2019 10:10 am
robertmcd wrote:
Tue Sep 10, 2019 2:22 pm
livesoft wrote:
Tue Sep 10, 2019 2:17 pm
Total US Bond Index funds have lost about 1% of their value in the past few days (even accounting for the monthly dividend), so something got pricked.
Buy the dip in bonds just like buy the dip in stocks. They are both going to infinity.
1% down = dip :?:
EDV down like 7%

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

Post by Hector » Wed Sep 11, 2019 11:16 am

robertmcd wrote:
Wed Sep 11, 2019 10:30 am
Hector wrote:
Wed Sep 11, 2019 10:10 am
robertmcd wrote:
Tue Sep 10, 2019 2:22 pm
livesoft wrote:
Tue Sep 10, 2019 2:17 pm
Total US Bond Index funds have lost about 1% of their value in the past few days (even accounting for the monthly dividend), so something got pricked.
Buy the dip in bonds just like buy the dip in stocks. They are both going to infinity.
1% down = dip :?:
EDV down like 7%
portfolio of VTI/EDV or VT/EDV with rebalancing band can keep people busy.

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

Post by frcabot » Thu Sep 12, 2019 10:33 am

This is what I was referring to earlier. ECB has just recommitted to buying $20B of Euro bonds per month for the foreseeable future. So owning Euro Gov’t Bonds promises a good risk-adjusted return of principal despite the negative yields.

https://www.cnbc.com/2019/09/12/europea ... ogram.html

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

Post by Hector » Thu Sep 12, 2019 11:52 am

frcabot wrote:
Thu Sep 12, 2019 10:33 am
This is what I was referring to earlier. ECB has just recommitted to buying $20B of Euro bonds per month for the foreseeable future. So owning Euro Gov’t Bonds promises a good risk-adjusted return of principal despite the negative yields.

https://www.cnbc.com/2019/09/12/europea ... ogram.html
Are there developed world or European short term treasury bond fund/ETFs with less than 0.1% ER?

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

Post by frcabot » Thu Sep 12, 2019 12:58 pm

Hector wrote:
Thu Sep 12, 2019 11:52 am
frcabot wrote:
Thu Sep 12, 2019 10:33 am
This is what I was referring to earlier. ECB has just recommitted to buying $20B of Euro bonds per month for the foreseeable future. So owning Euro Gov’t Bonds promises a good risk-adjusted return of principal despite the negative yields.

https://www.cnbc.com/2019/09/12/europea ... ogram.html
Are there developed world or European short term treasury bond fund/ETFs with less than 0.1% ER?
Not AFAIK. Vanguard has VTABX and BNDX as an ETF but they're only 56.8% Europe and not limited to government bonds (which is what the ECB is buying). Then there are other products with higher expense ratios, but the bonds the ECB are buying are longer-term bonds. In the short-term space you have ISHG (66% European, 0.35% ER) and BWZ. The longer-term equivalents are IGOV and BWX, also with 0.35% ERs and similar weighting.

If you want to look at Europe exclusively, there is a German leveraged Bund ETF that has posted incredible returns, but has a high ER of 0.95%: BUNT, with returns of 25.11%, 91.90% and 109.39% over 1, 3 and 5 years respectively. There's also a 3x Italian government bond ETF, with the same ER and even better returns: ITLT, returns of 58% and 230% over 1 and 3 years respectively. I'd advise caution with leveraged products, obviously.

Edit: I think the last 2 are ETNs and not ETFs.
Last edited by frcabot on Thu Sep 12, 2019 1:00 pm, edited 1 time in total.

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

Post by abuss368 » Thu Sep 12, 2019 12:59 pm

We are definitely "doing something about it"! That is staying the course and continuing to save and invest according to our asset allocation.
John C. Bogle: "Simplicity is the master key to financial success."

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

Post by MotoTrojan » Thu Sep 12, 2019 1:05 pm

stlutz wrote:
Wed Sep 04, 2019 9:26 pm
This board makes me think we're in a bubble with threads hoping that there will soon be a 5x levered ETF on 100 year treasury bonds yielding 0%.

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

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

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

Post by MotoTrojan » Thu Sep 12, 2019 1:06 pm

frcabot wrote:
Thu Sep 12, 2019 10:33 am
This is what I was referring to earlier. ECB has just recommitted to buying $20B of Euro bonds per month for the foreseeable future. So owning Euro Gov’t Bonds promises a good risk-adjusted return of principal despite the negative yields.

https://www.cnbc.com/2019/09/12/europea ... ogram.html
This is now priced in, so I disagree that this should be viewed as a positive now.

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

Post by prioritarian » Thu Sep 12, 2019 1:18 pm

The whole point of bonds for me is to de-risk the part of my AA that I expect to provide the majority of my gains (and dividends). For example, during the great recession my Treasury bond holdings went in the opposite direction of equities and provided far, far more diversification than holding cash, cds, or TIAA traditional.

Lower yields are also a late cycle economic indicator so, if anything, they suggest to me that I should be *lengthening* the average duration of my bond holdings.

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

Post by Wayne Kramer » Thu Sep 12, 2019 2:34 pm

I'm selling bonds, VFIDX, each month on an automatic program, as the price is nice and high
Buying, Balanced Index fund 60/40 VBIAX.
Current AA = 35 equities/ 50 bonds /15 cash, getting ready for a big sale!!

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

Post by Hector » Thu Sep 12, 2019 2:52 pm

frcabot wrote:
Thu Sep 12, 2019 12:58 pm
Hector wrote:
Thu Sep 12, 2019 11:52 am
frcabot wrote:
Thu Sep 12, 2019 10:33 am
This is what I was referring to earlier. ECB has just recommitted to buying $20B of Euro bonds per month for the foreseeable future. So owning Euro Gov’t Bonds promises a good risk-adjusted return of principal despite the negative yields.

https://www.cnbc.com/2019/09/12/europea ... ogram.html
Are there developed world or European short term treasury bond fund/ETFs with less than 0.1% ER?
Not AFAIK. Vanguard has VTABX and BNDX as an ETF but they're only 56.8% Europe and not limited to government bonds (which is what the ECB is buying). Then there are other products with higher expense ratios, but the bonds the ECB are buying are longer-term bonds. In the short-term space you have ISHG (66% European, 0.35% ER) and BWZ. The longer-term equivalents are IGOV and BWX, also with 0.35% ERs and similar weighting.

If you want to look at Europe exclusively, there is a German leveraged Bund ETF that has posted incredible returns, but has a high ER of 0.95%: BUNT, with returns of 25.11%, 91.90% and 109.39% over 1, 3 and 5 years respectively. There's also a 3x Italian government bond ETF, with the same ER and even better returns: ITLT, returns of 58% and 230% over 1 and 3 years respectively. I'd advise caution with leveraged products, obviously.

Edit: I think the last 2 are ETNs and not ETFs.
Thanks. Past returns are great!

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

Post by Hector » Thu Sep 12, 2019 2:57 pm

abuss368 wrote:
Thu Sep 12, 2019 12:59 pm
We are definitely "doing something about it"! That is staying the course and continuing to save and invest according to our asset allocation.
Stay the course is a common phrase here.

A general question to folks here: when you decided on your course,
Were these low rates a consideration?
How about negative rates?

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

Post by abuss368 » Thu Sep 12, 2019 3:01 pm

Hector wrote:
Thu Sep 12, 2019 2:57 pm
abuss368 wrote:
Thu Sep 12, 2019 12:59 pm
We are definitely "doing something about it"! That is staying the course and continuing to save and invest according to our asset allocation.
Stay the course is a common phrase here.

A general question to folks here: when you decided on your course,
Were these low rates a consideration?
How about negative rates?
I did not consider any of that personally. I simply relied on investment experts who know much more than I do and stayed the course.
John C. Bogle: "Simplicity is the master key to financial success."

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

Post by stlutz » Thu Sep 12, 2019 7:38 pm

MotoTrojan wrote:
Thu Sep 12, 2019 1:05 pm
stlutz wrote:
Wed Sep 04, 2019 9:26 pm
This board makes me think we're in a bubble with threads hoping that there will soon be a 5x levered ETF on 100 year treasury bonds yielding 0%.

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

In my own portfolio I make very small duration bets. When rates were going up last year I expanded my portfolio duration from 5 to about 6. I'm currently in the process of letting that drop down to around 5. But not doing anything terribly proactive about it--really just putting new money in shorter term bond fund and letting my individual bond holdings ride without replacing far out rungs in the ladder.
You moved your duration from 5 to 6 years?!? Risk taker right here! :)
Before you know it I might adopt a 1% gold allocation--no telling what might happen! :wink: :moneybag

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

Post by MotoTrojan » Thu Sep 12, 2019 8:10 pm

stlutz wrote:
Thu Sep 12, 2019 7:38 pm
MotoTrojan wrote:
Thu Sep 12, 2019 1:05 pm
stlutz wrote:
Wed Sep 04, 2019 9:26 pm
This board makes me think we're in a bubble with threads hoping that there will soon be a 5x levered ETF on 100 year treasury bonds yielding 0%.

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

In my own portfolio I make very small duration bets. When rates were going up last year I expanded my portfolio duration from 5 to about 6. I'm currently in the process of letting that drop down to around 5. But not doing anything terribly proactive about it--really just putting new money in shorter term bond fund and letting my individual bond holdings ride without replacing far out rungs in the ladder.
You moved your duration from 5 to 6 years?!? Risk taker right here! :)
Before you know it I might adopt a 1% gold allocation--no telling what might happen! :wink: :moneybag
1% bitcoin may be more worthwhile :).

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

Post by Alchemist » Thu Sep 19, 2019 1:21 am

fredflinstone wrote:
Wed Sep 04, 2019 6:53 am
For many years I was heavily tilted toward long-term bonds. At the moment, I prefer the 1-year bond to the 20-year one, because there is less downside risk. Bonds are supposed to be the safe part of one's portfolio.
Emphasis mine.

All my bonds are short term treasuries (FUMBX) but I have a 90/10 portfolio. However I think it is important to stress the part of your post I bolded. The danger of a bond 'bubble' is not that in a quick few months they lose 50% of their value like in a stock crash. Rather, it is that they suffer a real and permanent loss of value. If stocks go down, they have the potential to recover even if it takes a long time. Bonds? With long term yields this low even a small rate increase of a few percent can mean permanent, real losses for anyone buying them right now because once a long term bond yielding less than future inflation is purchased you are stuck with it. Unlike a stock, it cannot ever recover that lost value. That is the real danger in bonds.

For that reason I would be very, very cautious in purchasing long term treasuries. I do not know where rates will be in 30 years, but I suspect there is at least an even chance (or better) they will be higher than today. I do not think longer term inflation in the United States between now and 2049 is likely to be less than 2%. Thus buying a 30 year treasury at current yields makes no sense to me.

I could be wrong. Bonds are a small part of my portfolio, at least for the next couple decades, so being wrong or right won't help/hurt very much. But I have a lot for sympathy for current retirees because this bond market is just so weird I doubt anyone really knows what the next 2 years will bring much less 20.

If I had a large fixed income position I would be taking a hard look at shifting a sizable portion into CD's.

z3r0c00l
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Re: Has the bond bubble finally arrived? If so, is anyone doing anything about it?

Post by z3r0c00l » Thu Sep 19, 2019 5:32 am

Not so sure there is such a thing as a bond bubble, not in the way normal bubbles behave anyway. However if I can get better return on a 12 month CD than on a 6-7 year bond mutual fund, and it looks like I can get 30 bps better right now, then I am going to take it. Will regret that if yields drop even more however I never got into bonds for short term, speculative gains.

I am of the mind that insurance companies, pension funds, other countries, us government, federal reserve, force bond yields lower because they have no other option but to buy. The fed, of course, is doing it intentionally! The rest of us can shop around for more boutique things like CDs and iBonds.

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