1994 bond market crash?

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Tristrex
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1994 bond market crash?

Post by Tristrex » Mon Mar 22, 2010 6:42 pm

I've noticed that there have been a lot of topics recently with regard to bonds/rising interest rates/inflation/etc. The 1994 bond market crash/massacre/whatever-you-call-it seems to be brought up in the course of the discussion, but I haven't seen a whole lot of information about what actually occurred then.

What was the trouble with bonds in 1994, and how does what happened then apply (or not apply) to today? I'm interested from just a historical perspective, it is not my intention to start another thread similar to other recent ones.

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1994

Post by hollowcave2 » Mon Mar 22, 2010 7:19 pm

According to Yahoo data, year 1994 showed a negative 2.65% total return for the Vanguard's Total Bond Index fund. That doesn't seem like a massacre to me.

Diversification goes a long way towards smoothing the ride.

I'll let the experts chime in on the causes of 1994 for this loss, but the actual number above seems quite tame to me.

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old news story

Post by hollowcave2 » Mon Mar 22, 2010 7:27 pm

I found this old news story from Fortune magazine that addresses your question;

http://money.cnn.com/magazines/fortune/ ... /index.htm

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Re: 1994

Post by Tristrex » Mon Mar 22, 2010 7:37 pm

hollowcave2 wrote:According to Yahoo data, year 1994 showed a negative 2.65% total return for the Vanguard's Total Bond Index fund. That doesn't seem like a massacre to me.

Diversification goes a long way towards smoothing the ride.

I'll let the experts chime in on the causes of 1994 for this loss, but the actual number above seems quite tame to me.
Right, the fact that -2.65% was considered a "massacre" has me a bit puzzled :)
hollowcave2 wrote:I found this old news story from Fortune magazine that addresses your question;

http://money.cnn.com/magazines/fortune/ ... /index.htm
I saw this article too, but it was just about the only thing I found. Also note that it was written in 1994, I don't know how much that would affect the content of it.

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Post by CaveatEmptor » Mon Mar 22, 2010 8:22 pm

The Fortune magazine article says that interest rates jumped up in 1994 (so it was the "interest rate risk" of bonds that showed up in 1994, unlike the 2008 crisis in which it was their "credit risk" aspect that did the damage). I read a lot of opinions that interest rates are so low today that they are more likely to increase than to decrease, but that's what pundits were saying of Japanese bonds at a point from which they trounced Japanese stocks for a long period of time.

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Re: 1994

Post by stratton » Mon Mar 22, 2010 10:35 pm

Tristrex wrote:Right, the fact that -2.65% was considered a "massacre" has me a bit puzzled :)
If the yield was ~8% then you're looking at a ~10% NAV hit.

That's for the year. That doesn't mention the lowest point or maximum drop. GNMAs dropped a lot more in Oct/Nov that year and recovered. I posted about this in one of the GNMA threads. They were off a bit over 20% at one point then rallied at the end of the year.

Paul

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Re: 1994

Post by Valuethinker » Tue Mar 23, 2010 4:09 am

stratton wrote:
Tristrex wrote:Right, the fact that -2.65% was considered a "massacre" has me a bit puzzled :)
If the yield was ~8% then you're looking at a ~10% NAV hit.

That's for the year. That doesn't mention the lowest point or maximum drop. GNMAs dropped a lot more in Oct/Nov that year and recovered. I posted about this in one of the GNMA threads. They were off a bit over 20% at one point then rallied at the end of the year.

Paul
This is absolutely key:

- yields then were around 7-8%. So a -20% in long bond price meant a -12% total return. Now the same price move would be a -16% all things being equal

- all things are not equal: lower coupon means greater convexity (greater sensitivity to movements in interest rates)

- you pay tax generally on your income from bonds, you don't save tax on the negative return, generally

- although everyone claims to be total return focused, most of us also look at price/ NAV of funds

- sub periods within that 12 months were worse

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Re: 1994 bond market crash?

Post by Valuethinker » Tue Mar 23, 2010 4:12 am

Tristrex wrote:I've noticed that there have been a lot of topics recently with regard to bonds/rising interest rates/inflation/etc. The 1994 bond market crash/massacre/whatever-you-call-it seems to be brought up in the course of the discussion, but I haven't seen a whole lot of information about what actually occurred then.

What was the trouble with bonds in 1994, and how does what happened then apply (or not apply) to today? I'm interested from just a historical perspective, it is not my intention to start another thread similar to other recent ones.
Greenspan was worried about rising inflationary expectations at a period when financial institutions and hedge funds had piled heavily into Long Treasuries, and individual investors into bond mutual funds.

He raised interest rates preemptively, in advance of market expectations of a rise.

The result was a wholesale liquidation of bond market positions and a rout in bond markets.

In the end, probably due to factors like increasing US productivity and the rise of China as a manufacturing destination, inflation did not take off. The economy slowed a bit, and then recovered.

Richard Bookstaber, in his book 'A Demon of Our Own Design' has an intriguing footnote about the dangers from large portfolios of Mortgage Backed Securities, whose sensitivity to interest rates is exaggerated for large moves (but who move like normal bonds for small moves). It's worth reading that footnote, written before the credit crunch.

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Post by Valuethinker » Tue Mar 23, 2010 4:16 am

CaveatEmptor wrote:The Fortune magazine article says that interest rates jumped up in 1994 (so it was the "interest rate risk" of bonds that showed up in 1994, unlike the 2008 crisis in which it was their "credit risk" aspect that did the damage). I read a lot of opinions that interest rates are so low today that they are more likely to increase than to decrease, but that's what pundits were saying of Japanese bonds at a point from which they trounced Japanese stocks for a long period of time.
The issue today is, as it was in 1994, not so much inflation (of which there is little or no sign) but rather Fed Policy.

In the 1990 S&L Crisis, when Citigroup looked like it was going to go bust, the Fed lowered interest rates to unprecedented low levels (sound familiar?).

It was the reversal of that stance, which had become the market norm, that caused the bond market bubble pop.

Now this cycle, the Fed has been even more aggressive in injecting liquidity: Quantitative Easing etc.

The reversal of that could cause the bond market to correct quite sharply.

1994 is just useful as a 'reasonable extreme' event in assessing bond fund risk. OK it's not 1980, but we don't have double digit inflation either, and 2008 showed that even with $150/bl oil we do not get double digit inflation (whereas if you asked me in 2000, say, what would happen with $150/bl oil, I would have predicted a rerun of the 1970s).

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Re: 1994

Post by linuxizer » Tue Mar 23, 2010 6:12 am

Hi VT,

Your explanations are most valuable as always. Thanks for shedding light on the 1994 crisis.
- all things are not equal: lower coupon means greater convexity (greater sensitivity to movements in interest rates)
I think you've got a typo here which I want to correct to avoid confusing folks. Lower coupon on an optionless bond does mean higher convexity, but higher convexity means lower sensitivity to movements in interest rates. The corrected quote should be:
- all things are not equal: lower coupon means greater duration (greater sensitivity to movements in interest rates)

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Post by Valuethinker » Tue Mar 23, 2010 6:14 am

CaveatEmptor wrote:The Fortune magazine article says that interest rates jumped up in 1994 (so it was the "interest rate risk" of bonds that showed up in 1994, unlike the 2008 crisis in which it was their "credit risk" aspect that did the damage). I read a lot of opinions that interest rates are so low today that they are more likely to increase than to decrease, but that's what pundits were saying of Japanese bonds at a point from which they trounced Japanese stocks for a long period of time.
Credit risk is associated with economic growth (the lower, the worse the credit risk). The world economy is recovering (we hope) and so lower credit risk.

Credit risk has shown up in the Greece situation, and I expect sovereign credit risk (on the peripheral countries of the big economies) is going to be a steadily increasing issue.

Interest rate risk is now the threat for most bonds.

However the parallel with Japan is interesting: the core inflation rate still seems to be steadily decreasing, despite higher commodity prices. As the USD rises against the Euro and other currencies, that is exacerbated.

My guess is the US will avoid outright deflation. The Fed has acted strongly, fiscal policy (at the Federal level, the net with states and local government is about neutral) was accomodating. And, unlike Japan, the US has distinct positive demographics.

In addition, although the US economy is in part crippled by debt overhange, there exist legal mechanisms like Chapter 11 and home foreclosure to deal with it. As long as the banking system has enough capital to take the pain.

Experience from the likes of Scandinavia and SE Asia suggest that the countries that take the pain up front, let institutions go bust, abandon useless assets, are the ones that recover the first. Americans, having a forward looking legal system, and being a forward-looking country, are more likely to deal with the shock and the misallocation of resources quickly, rather than slowly. It's a touchy feely argument, I know, but it is how America works: it tends to get over trauma quickly.

The tricky bit is the 'export your way out of depression'. SE Asia did that so did many other countries in this mess- Canada in the early 90s, Scandinavia, Brasil etc.

The US is fundamentally too large in the world economy to pull that trick off (entirely). But a weak dollar would nonetheless help.

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Re: 1994

Post by Valuethinker » Tue Mar 23, 2010 6:16 am

linuxizer wrote:Hi VT,

Your explanations are most valuable as always. Thanks for shedding light on the 1994 crisis.
- all things are not equal: lower coupon means greater convexity (greater sensitivity to movements in interest rates)
I think you've got a typo here which I want to correct to avoid confusing folks. Lower coupon on an optionless bond does mean higher convexity, but higher convexity means lower sensitivity to movements in interest rates. The corrected quote should be:
- all things are not equal: lower coupon means greater duration (greater sensitivity to movements in interest rates)
I'd have to think about that, but I think you are right. I jsut remember the shape of that curve is partly determined by the coupon rate-- I am remembering the graphs, without being able to recreate the line of argument.

In the extremis, a zero coupon bond has a duration equal to its maturity.

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Re: 1994

Post by Valuethinker » Tue Mar 23, 2010 6:23 am

linuxizer wrote:Hi VT,

Your explanations are most valuable as always. Thanks for shedding light on the 1994 crisis.
- all things are not equal: lower coupon means greater convexity (greater sensitivity to movements in interest rates)
I think you've got a typo here which I want to correct to avoid confusing folks. Lower coupon on an optionless bond does mean higher convexity, but higher convexity means lower sensitivity to movements in interest rates. The corrected quote should be:
- all things are not equal: lower coupon means greater duration (greater sensitivity to movements in interest rates)
My main point is not that we think 1994 will repeat itself, exactly, but that it is a useful 'practical extreme' for testing how badly hit a bond portfolio can be by Fed tightening.

However one would have to assume total returns of a further -4% or so, due to lower yields prevalent now.

My rules of thumb are:

- a bond fund can hit you with -10% on the capital value in a given tightening phase

- a long bond fund, or a high yield fund, can hit you with -15-20% (the latter due to credit risks)

- a short term fund the risk is more like -5% (duration of say 2-2.5 years)

In each of the above cases, the yield would be a positive on that: c 2-5% added to work out your total return for the year.

- an equity fund can lose you -50% value in a given year

As long as you are happy that you can live with these sorts of risks eg that you don't need the money within the time frame of one year, then you can invest knowing those risks.

We can model much bigger changes in interest rates, but generally, since the 1979-1982 period (when interest rates went up to 21% then came sharply down) that's not a reasonable assumption.

Generally you should match duration of assets to duration of liabilities (as a rough rule). So if you need money in 10 years, an intermediate bond fund with a duration of 5-6 years is appropriate. Generally long bond funds are too volatile for most investors.

If you need money in 1 year, a fund with a duration of less than 1 year (duration of a money market fund is probably 30-60 days) is appropriate.

As always, to assess risk, bond funds should be benchtested against 2008, and against 1994 as 'in extremis' in the first case due to credit and liquidity risk and in the second due to interest rate risk. Just remember to whack another 4% off total returns in the latter case.

TIPS have their own pathology. More complex. But the 2008 performance (about -11% at worst?) is not a bad rule of thumb.

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Post by CaveatEmptor » Tue Mar 23, 2010 6:41 pm

Valuethinker wrote: However the parallel with Japan is interesting: the core inflation rate still seems to be steadily decreasing, despite higher commodity prices. As the USD rises against the Euro and other currencies, that is exacerbated.

My guess is the US will avoid outright deflation. The Fed has acted strongly, fiscal policy (at the Federal level, the net with states and local government is about neutral) was accomodating. And, unlike Japan, the US has distinct positive demographics.
I agree that we are likely to avoid deflation, that better policies will help us, but Japan did not face an environment of a worldwide slowdown like we do (other countries kept growing during Japan's stagnant decades), nor was Europe in the straitjacket of a common currency, etc, etc. Our avoidance of deflation is probable, but nowhere near a sure thing.

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Post by Tristrex » Wed Mar 24, 2010 12:44 am

Thanks for the information everyone (especially Valuethinker), it's been good reading :)

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Re: 1994

Post by saurabhec » Wed Mar 24, 2010 2:02 am

Valuethinker wrote: This is absolutely key:

- yields then were around 7-8%. So a -20% in long bond price meant a -12% total return. Now the same price move would be a -16% all things being equal

- all things are not equal: lower coupon means greater convexity (greater sensitivity to movements in interest rates)

- you pay tax generally on your income from bonds, you don't save tax on the negative return, generally

- although everyone claims to be total return focused, most of us also look at price/ NAV of funds

- sub periods within that 12 months were worse
Another thing that bears mentioning is that the composition of the Total Bond Market Index was likely quite different 16 years ago. Mortgage loans are now > 40% of the index thanks to the real estate binge that recently ended, and those loans tend to increase in duration as rates rise.
Anyone who is looking at 1994 and deriving comfort as that being the worst case is being complacent.

That said, I don't see any immediate or even short-term reasons to worry for TBM holders.

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Re: 1994

Post by Valuethinker » Wed Mar 24, 2010 4:09 am

saurabhec wrote:
Valuethinker wrote: This is absolutely key:

- yields then were around 7-8%. So a -20% in long bond price meant a -12% total return. Now the same price move would be a -16% all things being equal

- all things are not equal: lower coupon means greater convexity (greater sensitivity to movements in interest rates)

- you pay tax generally on your income from bonds, you don't save tax on the negative return, generally

- although everyone claims to be total return focused, most of us also look at price/ NAV of funds

- sub periods within that 12 months were worse
Another thing that bears mentioning is that the composition of the Total Bond Market Index was likely quite different 16 years ago. Mortgage loans are now > 40% of the index thanks to the real estate binge that recently ended, and those loans tend to increase in duration as rates rise.
Anyone who is looking at 1994 and deriving comfort as that being the worst case is being complacent.

That said, I don't see any immediate or even short-term reasons to worry for TBM holders.
This is a datum I of which I had been unaware.

And it's quite key.

The bogey we are tracking has changed composition.

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Re: 1994

Post by Tristrex » Wed Mar 24, 2010 9:25 am

saurabhec wrote:Another thing that bears mentioning is that the composition of the Total Bond Market Index was likely quite different 16 years ago. Mortgage loans are now > 40% of the index thanks to the real estate binge that recently ended, and those loans tend to increase in duration as rates rise.
Does this seem like a high percentage? That's a lot of mortgages for a "total" bond market :shock:

Would the durations of the mortgages increase because many of them are variable rate? If that were the case, wouldn't their NAV be less susceptible to taking a hit?

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Re: 1994

Post by Valuethinker » Wed Mar 24, 2010 9:42 am

Tristrex wrote:
saurabhec wrote:Another thing that bears mentioning is that the composition of the Total Bond Market Index was likely quite different 16 years ago. Mortgage loans are now > 40% of the index thanks to the real estate binge that recently ended, and those loans tend to increase in duration as rates rise.
Does this seem like a high percentage? That's a lot of mortgages for a "total" bond market :shock:

Would the durations of the mortgages increase because many of them are variable rate? If that were the case, wouldn't their NAV be less susceptible to taking a hit?
The US Agencies (Fannie Freddie GNMA FHB) are the largest bond issuers in the world (after the US Treasury and the Japanese Government). Roughly about $6 trillion in issue.

Negative convexity is the tendency of mortgage backed securities to extend duration as interest rates, and cut duration as interest rates fall.

The latter due to home owners refinancing, the former due to home owners extending: not repaying mortgages as fast as they have done historically. (refinance and extension risk => negative convexity).

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Post by Random Musings » Wed Mar 24, 2010 3:34 pm

The 1994 bond market crash/massacre/whatever-you-call-it seems to be brought up in the course of the discussion, but I haven't seen a whole lot of information about what actually occurred then.
Relative to other points in history with respect to real bond returns, the 1994 bond market "crash" was a small blip on the radar. Bonds have had very lousy real returns over very long periods of time in the past. Mostly, prior to the 1980-1981 period when interest rates peaked.

RM

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Re: 1994

Post by saurabhec » Thu Mar 25, 2010 12:13 am

Tristrex wrote:
saurabhec wrote:Another thing that bears mentioning is that the composition of the Total Bond Market Index was likely quite different 16 years ago. Mortgage loans are now > 40% of the index thanks to the real estate binge that recently ended, and those loans tend to increase in duration as rates rise.
Does this seem like a high percentage? That's a lot of mortgages for a "total" bond market :shock:

Would the durations of the mortgages increase because many of them are variable rate? If that were the case, wouldn't their NAV be less susceptible to taking a hit?
Yes it is very high. That is why Jack Bogle has mentioned a few times that he doesn't like this fund as much as the Intermediate Term Bond Index. That is what happens when capital gets misallocated in an economy, you get distortions like these. Of course recent attempts to increase the tax burden on investment income only encourage savers to pile more of their net worth into homes financed used leverage => same net worth, but less taxes.


Most mortgage loans are fixed rate and not floating rate BTW.

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Post by Eureka » Thu Mar 25, 2010 3:48 am

I remain skeptical of the bias I see at Bogleheads in favor of Total Bond Market Index vs. GNMA. (I hold both.) Despite the fact that Total Bond reportedly held a lower percentage of mortgage-backed securities in 1994, it suffered more than GNMA, which had a total return of minus .95 percent, as best I can determine.

To put 1994 interest rates in perspective, I took out a 15-year, fixed-rate mortgage in September or October of 1994. I had perfect credit and put 36 percent down. My interest rate was 8.25 percent.

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Re: 1994

Post by Valuethinker » Thu Mar 25, 2010 4:20 am

saurabhec wrote:Of course recent attempts to increase the tax burden on investment income only encourage savers to pile more of their net worth into homes financed used leverage => same net worth, but less taxes.


Most mortgage loans are fixed rate and not floating rate BTW.
But US mortgage holders can still refi. And there is a historic repayment rate modelled into the MBS, which is sensitive to intererest rate assumptions ie extension risk.

The 'ARM reset' problem is very well documented, btw-- peaks in 2012. There are a lot of variable rate mortgages out there (and largely the ones more or most likely to be under water).

On housing, the distortions are well embedded: capital gains tax exemption on personal residence in particular, deductibility of mortgage interest. None would be politically touchable.

Changes on savings tax rates aren't going to have a big impact against that (it's very hard to show there is much net effect of tax changes on savings at all: 40 years of tinkering with various tax free accounts seems to have added up to the square root of zero).


The reality is the US has to have a system that allows mortgages to move between balance sheets in the financial system. Its banking system is just too fragmented otherwise. Unless the US becomes Canada (5 main banks are 90% of deposits and loans) . Even there, the Central Mortgage and Housing Corporation (our Freddie/Fannie/ GNMA) insures all mortgages over 80% of home value-- a substantial shadow public sector liability.

If we go to Germany, say, we have, instead of MBS, Pfandbrief. Which are covered bonds (nearly $1 trillion market) ie MBS with recourse against the balance sheet of the issuer.

However that means we also have to have very tight regulation: what goes into a Pfandbrief is highly regulated by the German authorities-- very high quality collateral.

I am all for free markets but in housing finance, you wind up having to inject a layer of regulation somewhere. that's true of housing finance in every major economy.

The US mortgage system, which allows 30 year fixed mortgages (but refinancable) is the envy of the rest of the world (or was). Money flows from investors to home borrowers at very low transactions costs. Consider the British system (80%+ mortgages on floating rate).

Stripping out the tax distortions in the US home ownership system would be a good thing (in the long run) but over the next 10 years or so would crucify the US housing market, to further untold macroeconomic harm.

It would also be politically unacceptable.

Like the QWERTY typewriter, or driving on the right (left) hand side of the road, path dependence means the US is stuck with it.

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Post by spam » Thu Mar 25, 2010 4:30 am

Tristrex wrote:
What was the trouble with bonds in 1994, and how does what happened then apply (or not apply) to today? I'm interested from just a historical perspective,
Image

It first depends on which catagory of bonds you are referring too. The above chart documents both Long and Short bond price history.

You will notice that a loss of about 15% seems to be the typical maximum, but in 1994, it looks like it surged to around 20%. The "Bond Vigilantees" were at work during that period and successfully convinced President Clinton to change his agenda. This might be a reason for the additional loss.

As to the comment about GMNA vs Treasurys, I like this simple risk comarision chart.

Image

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Post by nisiprius » Thu Mar 25, 2010 5:16 am

Eureka wrote:I remain skeptical of the bias I see at Bogleheads in favor of Total Bond Market Index vs. GNMA.
A lot of Bogleheads know more about bonds than I do. (One of these days I must find out whether there are bonds that exhibit "concavity.")

Between those who prefer the GNMA Fund (VFIIX) to the Total Bond Market Index Fund (VBMFX) because they want GNMA exposure, and those who prefer the Intermediate-Term Bond Index Fund (VBIIX) to VBMFX because it's free from GNMA exposure, what's a poor fella to do?

I know, hold some GNMA bonds and some traditional bonds? But how much of each? Oh, maybe about half-and-half, VFIIX/VBIIX, which roughly corresponds to their capitalization weighting in the market.

Now if only Vanguard offered some fund-of-funds that included both, in roughly equal amounts, and rebalanced automatically. :idea: :P
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Post by Valuethinker » Thu Mar 25, 2010 7:27 am

nisiprius wrote:
Eureka wrote:I remain skeptical of the bias I see at Bogleheads in favor of Total Bond Market Index vs. GNMA.
A lot of Bogleheads know more about bonds than I do. (One of these days I must find out whether there are bonds that exhibit "concavity.")

Between those who prefer the GNMA Fund (VFIIX) to the Total Bond Market Index Fund (VBMFX) because they want GNMA exposure, and those who prefer the Intermediate-Term Bond Index Fund (VBIIX) to VBMFX because it's free from GNMA exposure, what's a poor fella to do?

I know, hold some GNMA bonds and some traditional bonds? But how much of each? Oh, maybe about half-and-half, VFIIX/VBIIX, which roughly corresponds to their capitalization weighting in the market.

Now if only Vanguard offered some fund-of-funds that included both, in roughly equal amounts, and rebalanced automatically. :idea: :P
If you look at the GNMA performance I would expect a long run return of 1% or so pa better than a Treasury Bond fund, to reflect the 'Option Adjusted Spread' ie the put option that you have written to the mortgage borrower, allowing them to refinance at their discretion.

And yet you don't see that. The 10 and I think 20 year returns for the funds are almost the same. You are not being paid for the risk.

Thus, being Larry Swedroe about this, historically you have not been rewarded for taking on considerable risk:

- this risk is more apparent than real (my OAS estimate is too high)

OR

- the last 20 years has been unusually favourable to US government guaranteed MBS

I believe (as did Richard Bookstaber) that the acid test will come when we get some violent interest rate moves.

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Post by saurabhec » Fri Mar 26, 2010 10:49 pm

Eureka wrote:I remain skeptical of the bias I see at Bogleheads in favor of Total Bond Market Index vs. GNMA. (I hold both.) Despite the fact that Total Bond reportedly held a lower percentage of mortgage-backed securities in 1994, it suffered more than GNMA, which had a total return of minus .95 percent, as best I can determine.

To put 1994 interest rates in perspective, I took out a 15-year, fixed-rate mortgage in September or October of 1994. I had perfect credit and put 36 percent down. My interest rate was 8.25 percent.
The reason I don't like TBM is because it has too much of GNMA type securities. So I hardly consider that a superior alternative.

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Post by stratton » Sat Mar 27, 2010 11:13 am

Yahoo Finance is how showing historical performance data going back morte than 10 years. Vanguard GNMA (VFIIX)..

Scroll down and look at the quarterly returns with the negative ones in red. It's still too coarse to see any severe dips and volatility.

Largest total return drops.

q3 1981: -5.6%
q2 1984: -4.0
q2 1987: -2.6
q3 1987: -3.8
q1 1994: -2.3

Paul

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Re: 1994 mortgage backed securities crash

Post by lawsherm@gmail.com » Fri Apr 09, 2010 3:04 pm

The following blog post from [blog plug removed] may be helpful:

"How significant could the 1994 crash have been?

Very significant.

Before the 1994 crash,mortgage-backed securities /CDOs accounted for roughly one-third of the total US bond market.

The big three Wall Street producers and sellers of mortgage-backed securities were Kidder Peabody, Bear Stearns, and Lehman brothers. All three firms (as well as many others) took big hits when the MBS market evaporated in 1994.

[blog plug removed]

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1994 interest rates and collapse of Kidder Peabody

Post by lawsherm@gmail.com » Sat Apr 10, 2010 11:53 am

We need a few more posts here before the forum allows us to include links. However, just fyi, this topic prompted us to add to our "Time Machine Series" with a piece on the 1994 Kidder Peabody Collapse. Below in a brief excerpt. I believe our profile has the blog link. If not, please just google [link farming info removed].

"In the 1990s, Kidder rebuilt itself into a Wall Street juggernaut in mortgage-backed bonds.

***

But [1994's] sharp rise in interest rates, coupled with a bond-trading scandal, crippled the firm."

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Re: 1994 interest rates and collapse of Kidder Peabody

Post by nisiprius » Sat Apr 10, 2010 6:26 pm

lawsherm@gmail.com wrote:We [blog plug removed] need a few more posts here before the forum allows us to include links. However, just fyi, this topic prompted us to add to our "Time Machine Series" with a piece on the 1994 Kidder Peabody Collapse. Below in a brief excerpt. I believe our profile has the blog link. If not, please just google Wall Street Law Blog.

"In the 1990s, Kidder rebuilt itself into a Wall Street juggernaut in mortgage-backed bonds.

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But [1994's] sharp rise in interest rates, coupled with a bond-trading scandal, crippled the firm."
Link: [link to blog plugged site removed]
Interesting stuff. Thanks for sharing.
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.

lawsherm@gmail.com
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Joined: Fri Apr 09, 2010 2:46 pm

thanks for posting the link for us

Post by lawsherm@gmail.com » Sat Apr 10, 2010 8:50 pm

We are still trying to figure out the secret to navigating though the universe of Bogleheads.

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