Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
Why own T-bills when one can own no-penalty CDs, similar maturity, 1% APY, federally insured, fully liquid, and guaranteed not to lose value unlike a T-bill or a corporate bond?
Longer term bonds are another matter. Though as pointed out in the article, T-Notes aren't yielding that much either: "0.74% on June 17th for 10-Year Treasury Notes"
Nice piece. I appreciate his pointing out that
when isolating the US Long-Term Government returns to simple price performance in periods of crisis, the insurance provided by treasuries only pays out a bit over 50% of the time. In the aggregate, due to a few larger negative periods of treasury performance overlapping with sharp stock market drawdowns, the overall Crisis Alpha of treasuries is negative! What type of insurance policy makes holders pay nearly half the time when they most need it!?!
I would have expected something similar but not quite the same, that is: while still far from certain, a higher probability of long term Treasuries paying off. Though the negative alpha is not surprising since these can lose big if they don't hold up. I'll have to look more closely at the figures.
Mr. Seed is able to provide interesting data and thoughts. With his knowledge of the bond world, he indeed should be a very wealthy man.
'Course, this statement: "Summary: Don’t Listen to Bloomberg, Treasuries Aren’t for Everyone, at Least at These Rates." He does note the money that can be made during falling yields, but IMHO; he could have dedicated a few more words regarding this. I'm reminded of the period of falling yields after the melt in 2008. At the time, I also watched some CNBC tv. The commentators would mention falling Treasury yields and a fairly standard verbal statement would be, "you're not going to get much for your money with those." These folks, I presume; have enough financial wisdom to know what happens to bond pricing when the yields are falling. I watched numerous times expecting one of them to say that when yields are falling you may make good money from the price increases. Nope !!!
And from where do folks think a lot of the price appreciation arrives for the more plain vanilla balanced funds, be they moderate or conservative, during these past decades. Sure........the bonds.
Two and one half years chart of BAGIX v AGG v SPY . I used this time period, as 2018 had several bumps for equity, not counting the big bump on Christmas eve of 2018. So, if one held a decent bond fund or even the etf AGG, your holdings on those clunky bonds provided, eh? The point for the etf, is that these can provide, too; although I prefer a proven active managed bond fund at this time. Using sector etf's in bondland will allow one to build whatever mix you choose. Choices for a mixer are vast, as never before.
Lastly, we've traveled this bond turf many times. If you feel that yields may continue to move lower, you'll make money with quality bonds. If the hot equity market is going to melt, you'll likely do well with Treasury issues. If you are sure yields are going to move higher, then time to assess whatever bonds you're invested. If one finds an alternate, long/short or other magic box fund that is of interest, compare its life span to say a, FBALX or even VWINX to discover the ability of the fund to provide for profits. Some of the investment grade bond funds have been flat for a few weeks (too much money after equity, I suspect). This week has found more positive moves (price). Perhaps the bond folks are buying on the cheap, or hedging that equity is a bit too hot. I don't know. The ultimate consideration for one's portfolio is capital preservation and that you are comfortable with your choices. More now, than ever before; one has every which way to customize a portfolio.
Some type of bond is likely a part of your portfolio, whether a direct investment into a sector or a mix in an income or allocation fund.
I'll place this list again for a view of performance YTD (about mid-year for 2020). You may choose to review this bond list (copy/paste to your own document) periodically as a reference to performance. I don't anticipate updating this list. Pricing performance is where the gains or losses take place. I'm not attempting to find or chase a high yield. My preference is that a given bond area has a declining yield to provide for a likely increase in the price.
A few views from bondland, for AAA rated bonds:
JULY 10 WEEK / YTD
--- MINT = - .05% / +.9% (Pimco Enhanced short maturity) --- SHY = - 02% / +2.9% (UST 1-3 yr bills) --- IEI = + .0% /+5.2% (UST 3-7 yr notes/bonds) --- IEF = +1.5% /+6.9% (UST 7-10 yr bonds) --- TIP = +.2% / +6.6% (UST Tips, 3-10 yrs duration, some 20+ yr duration) --- LTPZ = +.6% / + 18% (UST, long duration TIPs bonds --- TLT = +1.7% /+23.8% (20+ Yr UST Bond --- EDV = -2.5% / +31.6% (UST Vanguard extended duration bonds) --- ZROZ = +2.8% /+33.8% (UST., AAA, long duration zero coupon bonds)
***Other, for reference, not AAA rated: --- HYG = +.4 / -3.7% (high yield bonds, proxy ETF) --- LQD = +.6% / +7.8% (corp. bonds, various quality)
I have also previously noted that EDV, TLT and ZROZ can be very hot potatoes to manage and require a close watch and what may adjust their directions.
***** It's not what you look at that matters, it's what you see. ***** Henry David Thoreau
Please alert me as to any errors.
NOTE: our portfolio at this time is fully tax sheltered investments and with this; we don't have concern with the taxable status of distributions or buys and sells in this area.
Thanks for the post,info @catch22. I took a look at Vanguards tip, VIPSX. YTD shows 6.54% as compared to LTPZ at 18%. Would the difference in return be do to duration ?
Hi @Derf Yes, as to duration being the BIG difference this year. You'll see in the list that the long duration bonds are the performers at this point. 'Course, this long duration is also subject to the biggest declines IF/WHEN yields start to increase, OR the demand starts to disappear. A note about VIPSX . VIPSX is an active managed fund. These managed TIP's funds can have a variety of mixes as to: duration of the holdings in TIPS and to what percentage of the holdings are actually TIPs. Some active managed TIP's funds contain (at times) up to 20% in corporate bonds. All of these funds are not the same. VIPSX is a pure TIPs fund at this time. Although Treasury TIPs have their birth and mission as an inflation protected bond, KEEP IN MIND; that the AAA Treasury rating finds these as an area of "flight to safety" when the global equity markets are in stress. As the so called inflation is low at this time, I suggest that the performance of TIPS this year is more inclined as a hedge against equity market stress potential in our future. I don't feel these are being purchased or held for their yield. Some TIPs funds/indexes currently have a negative yield. For our continued view at this house, the overwhelming consideration remains as to whether bond yields will continue to decline, which pushes the price upward; and this is where the profit potential exists. Not unlike equity markets, supply and demand are the functions to drive prices. In spite of very large issuing amounts of many forms of bonds, at this time; whomever (pension funds, etc.) is buying, the buying continues for now.
Comments
Longer term bonds are another matter. Though as pointed out in the article, T-Notes aren't yielding that much either: "0.74% on June 17th for 10-Year Treasury Notes"
Nice piece. I appreciate his pointing out that I would have expected something similar but not quite the same, that is: while still far from certain, a higher probability of long term Treasuries paying off. Though the negative alpha is not surprising since these can lose big if they don't hold up. I'll have to look more closely at the figures.
With his knowledge of the bond world, he indeed should be a very wealthy man.
'Course, this statement:
"Summary: Don’t Listen to Bloomberg, Treasuries Aren’t for Everyone, at Least at These Rates."
He does note the money that can be made during falling yields, but IMHO; he could have dedicated a few more words regarding this.
I'm reminded of the period of falling yields after the melt in 2008. At the time, I also watched some CNBC tv. The commentators would mention falling Treasury yields and a fairly standard verbal statement would be, "you're not going to get much for your money with those." These folks, I presume; have enough financial wisdom to know what happens to bond pricing when the yields are falling. I watched numerous times expecting one of them to say that when yields are falling you may make good money from the price increases. Nope !!!
And from where do folks think a lot of the price appreciation arrives for the more plain vanilla balanced funds, be they moderate or conservative, during these past decades. Sure........the bonds.
Two and one half years chart of BAGIX v AGG v SPY . I used this time period, as 2018 had several bumps for equity, not counting the big bump on Christmas eve of 2018. So, if one held a decent bond fund or even the etf AGG, your holdings on those clunky bonds provided, eh? The point for the etf, is that these can provide, too; although I prefer a proven active managed bond fund at this time. Using sector etf's in bondland will allow one to build whatever mix you choose. Choices for a mixer are vast, as never before.
Lastly, we've traveled this bond turf many times. If you feel that yields may continue to move lower, you'll make money with quality bonds. If the hot equity market is going to melt, you'll likely do well with Treasury issues. If you are sure yields are going to move higher, then time to assess whatever bonds you're invested. If one finds an alternate, long/short or other magic box fund that is of interest, compare its life span to say a, FBALX or even VWINX to discover the ability of the fund to provide for profits.
Some of the investment grade bond funds have been flat for a few weeks (too much money after equity, I suspect). This week has found more positive moves (price). Perhaps the bond folks are buying on the cheap, or hedging that equity is a bit too hot.
I don't know.
The ultimate consideration for one's portfolio is capital preservation and that you are comfortable with your choices. More now, than ever before; one has every which way to customize a portfolio.
Take care,
Catch
I'll place this list again for a view of performance YTD (about mid-year for 2020). You may choose to review this bond list (copy/paste to your own document) periodically as a reference to performance. I don't anticipate updating this list. Pricing performance is where the gains or losses take place. I'm not attempting to find or chase a high yield. My preference is that a given bond area has a declining yield to provide for a likely increase in the price.
A few views from bondland, for AAA rated bonds:
JULY 10 WEEK / YTD
--- MINT = - .05% / +.9% (Pimco Enhanced short maturity)
--- SHY = - 02% / +2.9% (UST 1-3 yr bills)
--- IEI = + .0% /+5.2% (UST 3-7 yr notes/bonds)
--- IEF = +1.5% /+6.9% (UST 7-10 yr bonds)
--- TIP = +.2% / +6.6% (UST Tips, 3-10 yrs duration, some 20+ yr duration)
--- LTPZ = +.6% / + 18% (UST, long duration TIPs bonds
--- TLT = +1.7% /+23.8% (20+ Yr UST Bond
--- EDV = -2.5% / +31.6% (UST Vanguard extended duration bonds)
--- ZROZ = +2.8% /+33.8% (UST., AAA, long duration zero coupon bonds)
***Other, for reference, not AAA rated:
--- HYG = +.4 / -3.7% (high yield bonds, proxy ETF)
--- LQD = +.6% / +7.8% (corp. bonds, various quality)
I have also previously noted that EDV, TLT and ZROZ can be very hot potatoes to manage and require a close watch and what may adjust their directions.
***** It's not what you look at that matters, it's what you see. *****
Henry David Thoreau
Please alert me as to any errors.
NOTE: our portfolio at this time is fully tax sheltered investments and with this; we don't have concern with the taxable status of distributions or buys and sells in this area.
Take care,
Catch
Thanks , Derf
Yes, as to duration being the BIG difference this year. You'll see in the list that the long duration bonds are the performers at this point. 'Course, this long duration is also subject to the biggest declines IF/WHEN yields start to increase, OR the demand starts to disappear.
A note about VIPSX . VIPSX is an active managed fund. These managed TIP's funds can have a variety of mixes as to: duration of the holdings in TIPS and to what percentage of the holdings are actually TIPs. Some active managed TIP's funds contain (at times) up to 20% in corporate bonds. All of these funds are not the same. VIPSX is a pure TIPs fund at this time.
Although Treasury TIPs have their birth and mission as an inflation protected bond, KEEP IN MIND; that the AAA Treasury rating finds these as an area of "flight to safety" when the global equity markets are in stress. As the so called inflation is low at this time, I suggest that the performance of TIPS this year is more inclined as a hedge against equity market stress potential in our future. I don't feel these are being purchased or held for their yield. Some TIPs funds/indexes currently have a negative yield.
For our continued view at this house, the overwhelming consideration remains as to whether bond yields will continue to decline, which pushes the price upward; and this is where the profit potential exists.
Not unlike equity markets, supply and demand are the functions to drive prices.
In spite of very large issuing amounts of many forms of bonds, at this time; whomever (pension funds, etc.) is buying, the buying continues for now.
Stay safe, Derf