odiousgambit
odiousgambit
Joined: Nov 9, 2009
  • Threads: 312
  • Posts: 8647
January 16th, 2015 at 1:10:02 PM permalink
Quote: RaleighCraps

So, let's see if I have this right......wouldn't the overall fund have to be in positive territory, at the 2% rate for the bonds they were holding (assuming 0% fees)?



I don't understand this perfectly, either, but you should realize you lose value only because interest rates go up after you invest. What you hold is old bonds, in funds or otherwise. The new bonds are clearly worth more, so if you sell your old bonds, they have less value vis a vis the new bonds, and go at a discount.

Still, holding on to real bonds to maturity, you need not worry, same as your house going down in value but you didnt intend to sell anyway at that time.

Holding on to a bond fund, worry LOL. People are buying and selling the fund, but I think it is a bigger factor that the fund managers do not think of holding on to the old bonds [this is the part of this I am unsure of, but ...] I believe what happens is there is value in going ahead and getting the new bonds.

Thus in your example, a well run fund would not be worth what you went in at plus 10 yrs of 2% interest, but if rates do something to make your funds go down in value, by the end of the 10 yrs you will have done better than that.

If I have learned anything, it is that you never want to be in the position of "having to sell" any quantity of stocks *or* bonds. If you can absolutely hold on to them and are well diversified just do so, rebalancing now and again. After a long enough period of time, you are going to come out smelling like a rose. Even in the worst performing [but diversified] investments, 30 years is going to make you look sweet. 40 years: it reaches mythical proportions.

You don't start a thread with this title when you are just kicking back without worries for the next 30 years though.
the next time Dame Fortune toys with your heart, your soul and your wallet, raise your glass and praise her thus: “Thanks for nothing, you cold-hearted, evil, damnable, nefarious, low-life, malicious monster from Hell!” She is, after all, stone deaf. ... Arnold Snyder
98Clubs
98Clubs
Joined: Jun 3, 2010
  • Threads: 52
  • Posts: 1728
January 16th, 2015 at 2:26:58 PM permalink
I have never been a supporter of buying bonds since the late 90's. I'm really agaainst it now that old bonds with a 3-4% rate are waayy over-priced to settle at the 1-2% yield. As others have stated, there's a lot of pain due at/near maturity. One of my major indicators, the NYSE new-high minus new-low just sharply broke trend. In the last 15 years, thats a very bearish signal. I also note that the NYSE index (NYA^) just cannot break 11000 and drive higher, and 10800 has had three head-bobs. Again this portends a floundering market that might go under. The up-side is that within 6-9 months the market will provide opportunity for a good run-up. IMHO these are the nervous days, the ones in which the market looks for direction... it might be commodity prices, especially grains and softs. These could be, and are currently tracking, as the new gold and oil. In a word, FOOD. /mho
Some people need to reimagine their thinking.
mdhovland
mdhovland
Joined: Jan 16, 2015
  • Threads: 0
  • Posts: 29
January 20th, 2015 at 8:04:06 PM permalink
Quote: RaleighCraps

I want to see what a 50/50 portfolio that went into 2007 looks like today, assuming no added funding and reallocation each year to maintain the 50/50 mix.




Using the SPY and TLT, beginning 8/31/2007, no reallocation:

50/50


Best,
Mark
Calder
Calder
Joined: Mar 26, 2010
  • Threads: 5
  • Posts: 531
January 20th, 2015 at 9:41:38 PM permalink
Sorry I found this thread late.

Last few months my broker has advocated corporate bonds with good coupon rates, but she'll only buy them at a discount. So whether they're subject to an early call or held to maturity, so there'll be a bit of appreciation plus the income stream -- as long as the company remains solvent, of course.

Recent Examples:
CINCINNATI BELL TEL DEBENTURE CPN 6.300%
MBIA INC BONDS CPN 5.700%
PULTE HOMES INC NOTES CPN 6.000%

Overseas:
TRANSOCEAN SEDCO FOREX NOTES CPN 7.450%

I don't know whether these are still trading at a discount, I don't track them daily. The whole point was to buy at a discount, pocket the income, and forget about them.
odiousgambit
odiousgambit
Joined: Nov 9, 2009
  • Threads: 312
  • Posts: 8647
January 21st, 2015 at 3:16:12 AM permalink
Quote: Calder

my broker has advocated corporate bonds with good coupon rates, but she'll only buy them at a discount.



Bonds trade at a discount when new issue has better rates, so I don't see how that is a factor.

Then again, I know little about corporate bonds except anyone has to realize these excellent returns are high because the default risk is high. I wouldnt be here if I didnt like gambling, but I have to know at least something about the game before I sit down to play.
the next time Dame Fortune toys with your heart, your soul and your wallet, raise your glass and praise her thus: “Thanks for nothing, you cold-hearted, evil, damnable, nefarious, low-life, malicious monster from Hell!” She is, after all, stone deaf. ... Arnold Snyder
odiousgambit
odiousgambit
Joined: Nov 9, 2009
  • Threads: 312
  • Posts: 8647
January 21st, 2015 at 3:42:09 AM permalink
Quote: mdhovland

Using the SPY and TLT, beginning 8/31/2007, no reallocation:

50/50


Best,
Mark



same, starting at march 5th, 2009

link

Mark, how much do you know about bonds? I have some questions:

*as the 10 yr is marching toward 1% or even lower, I tend to assume that bonds will hit the wall at some point, and can only wallow in the mud at low rates or eventually interest rates will go up. Or is it like the string that keeps being cut in half? eventually a real string can't be cut in half anymore, but a theoretical string can mathematically be cut in half forever. How about bonds? [how's that for string theory LOL] What I mean is, can we go for years with bonds just continuing to go up in value, or are those days coming to an end as we approach 10 yr 1% ... supposedly the Fed wants to start increasing rates.

*some European bonds are at negative interest rates. How do they do that and can that happen with US treasuries?
the next time Dame Fortune toys with your heart, your soul and your wallet, raise your glass and praise her thus: “Thanks for nothing, you cold-hearted, evil, damnable, nefarious, low-life, malicious monster from Hell!” She is, after all, stone deaf. ... Arnold Snyder
mdhovland
mdhovland
Joined: Jan 16, 2015
  • Threads: 0
  • Posts: 29
January 21st, 2015 at 10:07:07 PM permalink
Odiousgambit –


I know a bit but I probably might not be of much help when it comes to “why” this is going on. I can do the math to figure YTM, OID etc., but I can’t explain precisely why investors do or don’t buy bonds or currency in situations like we are currently seeing. I know why I don’t buy them but that’s subjective.

To (ab)use an old adage, “Money goes where it is treated best.” I know that sounds trivial, but...


-----*some European bonds are at negative interest rates. How do they do that and can that happen with US treasuries?


To answer your last question first, yes. In late 2013, US 3 mo. T-bills did go negative for a very short period in the secondary market. I read someplace that Denmark had two-year notes that were ISSUED at a negative yield for in 2012 and again last fall. I think buyers might have been making an interest rate play anticipating a rate cut. Not sure. Anyway, here's how they can go negative:

If you pay $1002.50 for a stripped note or bond in the secondary market and it matures at $1000, you have a negative yield to maturity.

$1002.50 paid, $1000 returned = -$2.50 return at maturity (a loss).
-$2.50/$1000 = -.25% yield to maturity.

If a bond still has the coupon attached - as issued or even AT issue - and you pay more than the coupon and par value both generate, a negative yield will also result. (The coupon entitles the income stream. A strip doesn't.)

If one trusts the credit-worthiness of the bond issuer, they will have merely paid a “fee” for the guaranteed return of principal.


You also wrote:

-----*What I mean is, can we go for years with bonds just continuing to go up in value, or are those days coming to an end as we approach 10 yr 1%

Here again, I’m baffled. Low interest rates are supposed to foster and generate economic growth. By many accounts, this is not happening, even on a global view. Now that the US QE’s are completed, I’m beginning to notice headlines of European QE.

We’ve been bouncing along the bottom for several years already with T-bills at lows of 5/8% yield and the USD at less than 1/10th% here and there. While the dollar has risen lately (especially against other currencies), I won’t even try to make a forecast on how this all plays out.


Kind of a simplistic “non-answer” to your question – sorry – but the truth is that I will stay my course. For me, that is predominately equities and/or cash equivalents, to varying degrees at this time.

There is more going on in Europe (Swiss Franc) but maybe that can wait for later when I have more time.


Best,
Mark
odiousgambit
odiousgambit
Joined: Nov 9, 2009
  • Threads: 312
  • Posts: 8647
January 24th, 2015 at 1:24:45 AM permalink
thanks

QE in Europe is official now, and at least for now I notice the 10 yr is stable, maybe going up in interest rate a bit ...

one comment I noticed was that the European central banks, doing QE, were buying bonds "including government debt", that latter which I had thought maybe the Fed had done, but maybe not ... that's pure old 'printing money' sure enough
the next time Dame Fortune toys with your heart, your soul and your wallet, raise your glass and praise her thus: “Thanks for nothing, you cold-hearted, evil, damnable, nefarious, low-life, malicious monster from Hell!” She is, after all, stone deaf. ... Arnold Snyder
mickeycrimm
mickeycrimm
Joined: Jul 13, 2013
  • Threads: 62
  • Posts: 2299
January 24th, 2015 at 5:24:26 AM permalink
Quote: RaleighCraps

I am trying to figure out ways to preserve my IRA (401K) accounts given the current markets.
YES, I do know that trying to time the markets is not a recommended play, and many who try it, don't fare as well as they could have otherwise.
But I just can't see where investing new money in stocks right now is going to work out in the short term. We have been on a 7 year bull run, yet our economy seems as stagnant now as it was 5 years ago. Layoffs are as common now as then. Even though the jobless numbers appear to have gone down, I'm not sure they are accurately accounting for the many people who have been out of work so long they have given up even looking. Many of the pundits I read are saying a pull back is inevitable, although some of them were saying that last year, and that was not a pull back by any means..... The global economy is more tightly coupled now, than it was in years past, so the old play of US market down, foreign markets up, is not really available any longer.

The bond market does not look very attractive, with interest rates so low, the bond values are going to get killed as interest rates rise, which they have to do pretty soon.

So as I see it, equities are not safe, world markets are not safe, and bonds are not a good play. Real estate has been on a tear, so that will likely pull back as well, if the markets start to tumble. Energy used to be a nice place to hide, but since oil started this free fall, and the Saudi saying oil will never go back to $100 a barrel, what will happen in the energy sector? Natural gas supplies are going to be saturated when Marcellus Shale reserves come on-line.

So what are your thoughts for investing? What to do?



There is to much creative accounting going on in the goverment over the unemployment numbers. I prefer using simple numbers. So 92,000,000 americans are unemployed.

92,000,000/330,000,000 = an unemployment rate of 28%.
"Quit trying your luck and start trying your skill." Mickey Crimm
mdhovland
mdhovland
Joined: Jan 16, 2015
  • Threads: 0
  • Posts: 29
February 12th, 2015 at 11:35:36 AM permalink
Some here may enjoy this article:

The 10th Man


" If you want to know where the next bear market is, look around at the people who are enjoying unimaginable wealth. Mr. Market has a habit of correcting things over time.

My guess is that you won’t be paid $200K/year to drive trucks in North Dakota for much longer. The best thing about capitalism is that everything is temporary. The last time around, people had the stock, could have sold it, and didn’t.

It will be the same this time. They will ride it all the way to the bottom. It’s human nature. Everyone gives the GoPro guy so much crap for stuffing everyone with stock, but maybe he knows something the rest of us don’t."



Best,
Mark

  • Jump to: