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DoubleLine Long Duration Total Return Bond Fund in registration
Me too. Is Gundlach thinking that long duration bonds are best at this time? Of course, these bonds have the greatest interest rate risk. The fund is supposed to have an average duration of at least 10 years, meaning that if the corresponding interest rates go up 1%, the NAV of the fund will go down by 10%.
The Fed just revealed yesterday that the Fed Funds rate, currently 0% to 0.25%, is expected by the Fed to be at 3.75% at the end of 2017. If the corresponding rates of the bonds that the DoubleLine Long Duration Bond Fund will invest in also increase 3.75%, the NAV of the fund would be expected to drop close to 37.5%.
That's huge. What's up with this new mutual fund? Why long duration, in light of what the Fed said yesterday?
Would love to hear what Gundlach would say. He obviously must think rates will not go up 3.75% over the next 3 years.
err...so he is filing for a fund toward the end of 2014 ?!?!?! Maybe he has flexibility to SHORT the long term bond too. I mean no law against it. That's gotta be it.
Thanks JohnChisum. There's still a mystery here. Why a Long Duration Bond Fund now? Gundlach gave his most recent views this very month, and they seem to be slightly different than in the article you referenced. Not huge, but he would have to think long term rates will fall to open a Long Duration Bond Fund.
How are long term rates going to fall if the Fed said yesterday that the Fed Funds rate should go to 3.75% at the end of 2017, and should go up gradually starting 2015.
Are long term rates going to fall while the overnight Fed Funds rate goes up steadily from 2015 thru 2017?
Or maybe he is banking on steady long term interest rates, and is looking for the greater yield that comes with longer maturity bonds.
Louis Rukeyser often talked about people who said that long term rates would not go up even though the Fed Funds rate went up....he believed they were wrong.....that it is not reasonable to expect long term rates to go down while the Fed is raising the Fed Funds rate
I don't know JohnChisum. I do know that Bill Gross does not believe that the Fed Funds rate will be 3.75% after rates have normalized. PIMCO believes in the "new neutral", and says the Fed Funds rate will be about 2% after rates have normalized. A "new", much lower "normal" of Fed Funds. I think Gundlach may have said this month that he thinks the Fed will have to move backwards and do more stimulating. Guess it depends on if you forecast the economy doing better and recovering better.......or needing to stay on life support.
"Guess it depends on if you forecast the economy doing better and recovering better.......or needing to stay on life support."
Perhaps this is such new territory that nobody has the answer. Personally I don't see rates going back down. They might stay put longer than expected. Yellen and the Fed have given themselves a lot of leeway with their wording.
I tried to post this a while ago but this site was freaking out so I'll try again. All of this is starting to sound more like gambling than investing. That may be telling in and of itself.
Is Gundlach looking for an eventual inverted yield curve? He has been outspoken about how he thinks the economy is not all that strong and an inverted yield curve would imply a recession. I can't see the Fed allowing an inverted yield curve though. I also think the economy may surprise to the upside in a big way. But then I never was much of a forecaster. I would salivate at a Fed funds of 3.75% in 2017 and the ensuing yields on money market funds.
Is Gundlach looking for an eventual inverted yield curve? He has been outspoken about how he thinks the economy is not all that strong and an inverted yield curve would imply a recession. I can't see the Fed allowing an inverted yield curve though. I also think the economy may surprise to the upside in a big way. But then I never was much of a forecaster. I would salivate at a Fed funds of 3.75% in 2017 and the ensuing yields on money market funds.
The Fed released their "Dot Plot" yesterday, showing the expectations of where the Fed Funds rate will be, according to each of the committee members, at the end of 2015, end of 2016, end of 2017, one "dot" for each member, for each data point. They expect 3.75% by the end of 2017.
@Junkster, is the reason you would salivate at a Fed Funds of 3.75% because you would want to invest in those money market funds or Certificates of Deposit, at the decent yields that we used to see in the past?
"Guess it depends on if you forecast the economy doing better and recovering better.......or needing to stay on life support."
All of this is starting to sound more like gambling than investing.
There does seem to be a significant element of 'gambling' and certainly a big element of interest rate forecasting. Even though the past history of interest rate forecasters has been bad, with respect to accuracy.
>>>>>@Junkster, is the reason you would salivate at a Fed Funds of 3.75% because you would want to invest in those money market funds or Certificates of Deposit, at the decent yields that we used to see in the past?<<<<<<
Yes! Unlike most here, I have no pension/employer retirement or a large monthly Social Security check. So what I earn on my nest egg is critical. At 2% (actually 1.50% to 1.75%) and more that would be more than enough to cover my lifestyle/expenses and even continue growing my capital. I am even beginning to watch the 5 year T-Bill rate like never before albeit not sure I would ever want to tie up my funds like that.
One thing we don't often discuss at MFO is Social Security claiming strategies. Take someone just about to reach what SS calls "Full Retirement Age", which is age 66 for most people looking at this question. If that person delays taking SS from age 66 till age 70, they will collect 32% more when they reach age 70.
If this person is thinking about collecting SS at age 62, if they wait till age 70 they will collect 76% more than at age 62. Since this also has an inflation rider added to it, it's a very big deal.
It's the most valuable "annuity" out there.
Of course for this to work, one must have pretty good health.
And there is the 'devil's advocate' other side of the story, and I can make that case too, but this side is pretty compelling.
I took Social Security at 62 and don't regret it one iota! By the time it all equals out, something like around 78, it won't make any difference as I assume my nest egg will be that much larger. I just learned today that one of my lady friends in one of my hiking groups woke up the other morning and found her boyfriend dead beside here. He was 65! No matter how great we may feel, we just never know. In old age methinks it is better to start enjoying those budding fruits of our long time financial labor than to just keep over-obsessing and over-planning till the day we drop.
Edit: I should also add that I turned 62 in April of 2009. Since then the market has been super. Taking early SS is just that much less of my capital I would have had to use for living/lifestyle expenses.
Actually, there's a way to sort of "have your cake and eat it too." It's called File and Suspend. Gives one tremendous flexibility in claiming. If one takes SS at age 62 and later regrets it, one can go a long way towards 'undoing' it.
If one plans to delay till age 70, go ahead and File and Suspend at age 66. One can always change their mind and get the full amount not claimed from age 66......
There is also one more thing we don't talk about here. Some of us live to see SS go bankrupt. Those that started taking payments at 66 might get something as opposed to those who wait till 72 and get nothing. I am not counting on getting anything from SSN. If I do end up getting it I might actually do that "world vacation" I really don't care if I do, but would do if I could.
I don't think it is discussed enough either, especially the point Junkster brings up. By taking your benefit at age 62, you are spending less of your investments. Of course the market could go down during that time period but who knows?
Re Social Security. We have found that, unless there are health issues or cash flow issues, it is almost always better financially to wait until age 70. The annual 8% increase in benefits to age 70 can be huge. And, if someone is still working full-time, there is no compelling reason to start receiving benefits.
We would not agree that SS will go bankrupt. Like almost everything else, Washington will 'fix' it at probably the last minute. I am waiting until age 70 since I plan to continue working, do not want additional taxes, do not need the dollars for cash flow, and currently have no health issues that would cause me to think I will not live past my life expectancy.
@rjb112: "The Fed just revealed yesterday that the Fed Funds rate, currently 0% to 0.25%, is expected by the Fed to be at 3.75% at the end of 2017. If the corresponding rates of the bonds that the DoubleLine Long Duration Bond Fund will invest in also increase 3.75%, the NAV of the fund would be expected to drop close to 37.5%."
why do you think that the overnight fed rate has anything to do with the long term interest rates?
in terms of timing of the launch, it is curious. however, if he thinks that the long rates are to go up in the short term due to the improving economy and exit of the large buyer (the fed), and then will stabilize for many years at around 4.5%, then he might get a good entry point during the next 6-8 months as the fed purchases subside and the first overnight rate hikes get implemented. also, the rising equity markets caused many previously underfunded pension schemes to get close to the fully funded status. most of them went to their respective boards and investment committees to ask for the 'de-risking' mandate. as more of them get this approved, there will be a huge demand for the long-term treasuries and IG corporates. so, may be, just may be, he has a vision and perspective that some on the retail side simply lack?
@rjb112: "The Fed just revealed yesterday that the Fed Funds rate, currently 0% to 0.25%, is expected by the Fed to be at 3.75% at the end of 2017. If the corresponding rates of the bonds that the DoubleLine Long Duration Bond Fund will invest in also increase 3.75%, the NAV of the fund would be expected to drop close to 37.5%."
why do you think that the overnight fed rate has anything to do with the long term interest rates?
There has to be at least some connection. That doesn't mean that the 10-yr or 30-yr has to go up by 3.75%, but there has to be a connection. Current Fed Fund rate: 0% to .25% Expected Fed Funds rate end of 2017: 3.75%
If there was no connection at all, then by the end of 2017 we would have an inverted yield curve, with the overnight rate higher than the 30-yr and 10-year rates.
If there was no connection, we wouldn't have all this talk about bond fund Duration, and the typical statements about "if rates go up 1%, the NAV will go down by the amount of the Duration", etc. Yeah, they could do a much better job specifying exactly which rates they are talking about, but the implication is that as the Fed raises rates, so generally will rates rise.....
I would like to read a "Whitepaper" or good article on the relationship between the Fed Funds rate and the 10-year and 30-year Treasury yield.
Comments
Of course, these bonds have the greatest interest rate risk.
The fund is supposed to have an average duration of at least 10 years, meaning that if the corresponding interest rates go up 1%, the NAV of the fund will go down by 10%.
The Fed just revealed yesterday that the Fed Funds rate, currently 0% to 0.25%, is expected by the Fed to be at 3.75% at the end of 2017. If the corresponding rates of the bonds that the DoubleLine Long Duration Bond Fund will invest in also increase 3.75%, the NAV of the fund would be expected to drop close to 37.5%.
That's huge. What's up with this new mutual fund? Why long duration, in light of what the Fed said yesterday?
Would love to hear what Gundlach would say.
He obviously must think rates will not go up 3.75% over the next 3 years.
MFOers, your comments please......
This is a quote from Mr. Gundlach in a article from Think Advisor earlier this year.
http://www.thinkadvisor.com/2014/05/14/gundlach-long-bond-melt-up-coming
There's still a mystery here. Why a Long Duration Bond Fund now?
Gundlach gave his most recent views this very month, and they seem to be slightly different than in the article you referenced. Not huge, but he would have to think long term rates will fall to open a Long Duration Bond Fund.
http://blogs.marketwatch.com/thetell/2014/09/09/jeffrey-gundlach-gives-market-calls-and-outlook/#commentform
How are long term rates going to fall if the Fed said yesterday that the Fed Funds rate should go to 3.75% at the end of 2017, and should go up gradually starting 2015.
Are long term rates going to fall while the overnight Fed Funds rate goes up steadily from 2015 thru 2017?
Or maybe he is banking on steady long term interest rates, and is looking for the greater yield that comes with longer maturity bonds.
Louis Rukeyser often talked about people who said that long term rates would not go up even though the Fed Funds rate went up....he believed they were wrong.....that it is not reasonable to expect long term rates to go down while the Fed is raising the Fed Funds rate
I do know that Bill Gross does not believe that the Fed Funds rate will be 3.75% after rates have normalized. PIMCO believes in the "new neutral", and says the Fed Funds rate will be about 2% after rates have normalized. A "new", much lower "normal" of Fed Funds.
I think Gundlach may have said this month that he thinks the Fed will have to move backwards and do more stimulating.
Guess it depends on if you forecast the economy doing better and recovering better.......or needing to stay on life support.
Fed data as of Sept 17, 2014
From MFO, Jan. 2, 2014:
http://www.mutualfundobserver.com/discuss/discussion/10146/the-other-fed-taper-what-are-the-implications-for-our-investments
Take care,
Catch
Perhaps this is such new territory that nobody has the answer. Personally I don't see rates going back down. They might stay put longer than expected. Yellen and the Fed have given themselves a lot of leeway with their wording.
I tried to post this a while ago but this site was freaking out so I'll try again. All of this is starting to sound more like gambling than investing. That may be telling in and of itself.
@Junkster, is the reason you would salivate at a Fed Funds of 3.75% because you would want to invest in those money market funds or Certificates of Deposit, at the decent yields that we used to see in the past?
Yes! Unlike most here, I have no pension/employer retirement or a large monthly Social Security check. So what I earn on my nest egg is critical. At 2% (actually 1.50% to 1.75%) and more that would be more than enough to cover my lifestyle/expenses and even continue growing my capital. I am even beginning to watch the 5 year T-Bill rate like never before albeit not sure I would ever want to tie up my funds like that.
If this person is thinking about collecting SS at age 62, if they wait till age 70 they will collect 76% more than at age 62. Since this also has an inflation rider added to it, it's a very big deal.
It's the most valuable "annuity" out there.
Of course for this to work, one must have pretty good health.
And there is the 'devil's advocate' other side of the story, and I can make that case too, but this side is pretty compelling.
@Junkster, please opine.
Edit: I should also add that I turned 62 in April of 2009. Since then the market has been super. Taking early SS is just that much less of my capital I would have had to use for living/lifestyle expenses.
If one plans to delay till age 70, go ahead and File and Suspend at age 66. One can always change their mind and get the full amount not claimed from age 66......
We would not agree that SS will go bankrupt. Like almost everything else, Washington will 'fix' it at probably the last minute. I am waiting until age 70 since I plan to continue working, do not want additional taxes, do not need the dollars for cash flow, and currently have no health issues that would cause me to think I will not live past my life expectancy.
why do you think that the overnight fed rate has anything to do with the long term interest rates?
in terms of timing of the launch, it is curious. however, if he thinks that the long rates are to go up in the short term due to the improving economy and exit of the large buyer (the fed), and then will stabilize for many years at around 4.5%, then he might get a good entry point during the next 6-8 months as the fed purchases subside and the first overnight rate hikes get implemented. also, the rising equity markets caused many previously underfunded pension schemes to get close to the fully funded status. most of them went to their respective boards and investment committees to ask for the 'de-risking' mandate. as more of them get this approved, there will be a huge demand for the long-term treasuries and IG corporates. so, may be, just may be, he has a vision and perspective that some on the retail side simply lack?
Good Morning to you and thank you for your perspective.
Take care of you and yours,
Catch
Current Fed Fund rate: 0% to .25%
Expected Fed Funds rate end of 2017: 3.75%
If there was no connection at all, then by the end of 2017 we would have an inverted yield curve, with the overnight rate higher than the 30-yr and 10-year rates.
If there was no connection, we wouldn't have all this talk about bond fund Duration, and the typical statements about "if rates go up 1%, the NAV will go down by the amount of the Duration", etc. Yeah, they could do a much better job specifying exactly which rates they are talking about, but the implication is that as the Fed raises rates, so generally will rates rise.....
I would like to read a "Whitepaper" or good article on the relationship between the Fed Funds rate and the 10-year and 30-year Treasury yield.
Do you know of any articles on the subject?