https://www.bloomberg.com/news/articles/2021-10-19/bond-investors-face-year-of-peril-as-inflation-meets-unwindingBond Investors Face Year of Peril With Few Places to HideBy
Finbarr Flynn
Keys:
Most global debt segments will lose money over 12 months...
Gross says U.S. 10-year yield will rise above 2% within a year...
Global bond investors face an old enemy -- inflation -- and the universe of fixed-income assets doesn’t look to offer much in the way of shelter.
U.S. Treasuries, European sovereigns, U.K. gilts and emerging-market credit are all set to lose money over the 12 months through September as dwindling coupons provide little cushion against rising yields, according to forecasts from Bloomberg Intelligence. Adding to the potentially toxic environment for bonds is the prospect of major central banks unwinding debt purchases and raising interest rates.***
Where else can you go.. cd yields crappy...
stocks /bonds corp/ junks etf/funds/ CEFs /banks CEFs/ preferred banks vehicles/ REITs???
Comments
YTD. +2.42
yield 2.55%
my own performance since investing in the fund, according to TRP: +5.12%
PRSNX. 1-year: 3.77%
ytd: 0.71%
yield: 2.87%
account performance since inception: 4.71%
PTIAX. 1-year: 3.29
ytd: 0.95%
yield: 3.47%
I can't complain..... yet.
...And if someone can either increase income or decrease spending, inflation is not as big a monster... unless we're talking late '70s/early '80s-style inflation: outa control. Yes, the current inflation headline statistic is +5.9%. But the way the gov't measures inflation is.... bullshit. It's higher that 5.9%, for sure. SOME things we CAN control, to protect and assist ourselves. But I'm preaching to the choir: we who are regular contributors to this message-board are among the luckiest, most fortunate. The country is being hollowed-out from within. We are in a long, slow decline, the way all empires eventually go through.
https://www.bls.gov/news.release/pdf/cpi.pdf
As I posted previously, CPI-E is even lower. According to the CPI-E excel spreadsheet data, this Y/Y figure as of Sept was about 5%.
There are also those who feel that items that are purchased infrequently shouldn't even be counted. On that basis, perhaps we should pull out the figures for vehicles like used cars and trucks. Their costs went up 24.7% over the past twelve months. As you wrote, some things we can control, and most people don't need to buy a vehicle in any given year.
Moving on to bonds, the three funds RPSIX, PRSNX, and PTIAX all have credit ratings of junk by M*. (This does not represent a tactical move by these funds; over the past several years they have been consistently rated junk.)
Junk bonds tend to have moderately high correlation with equities, and so share a similar (albeit muted) risk profiles. This has been a good year for equities and for junk bonds.
Here's a correlation matrix of the four funds. R² over the past year with respect to MWHYX (a junk bond fund) ranges from 49% for PTIAX to over 75% for RPSIX and PRSNX.
There really is a big difference, which is why M* doesn't simply score A's as 1, B's as 2, C's as 3 and so on when calculating a portfolio's average quality.
https://www.morningstar.com/articles/354597/credit-quality-demystified
PTIAX may be a mere poseur. Between 2012 and 2020 it was classified as a multisector bond fund, typically meaning that it had even more junk than a core plus bond fund. In 2021 it was classified as an intermediate core plus fund, and in 2011 it had been classified as an intermediate core fund (before core plus funds were given their own category).
As the linked article (about the new core plus category) states, the median amount of junk in a core plus fund is (or was, at the time) about 8%. DODIX has 11%, all BB (including NR bonds). PTIAX has more than that (12½%) in bonds rated lower than that (or NR). Plus another 5% rated BB. Then there's BCOIX, with less than 4% junk (including NR), nearly all at BB.
I suspect you'll find a fair degree of correlation between funds' YTD performance and the amount of junk in their portfolios. PTIAX > DODIX > BCOIX.
Note:edited to fix typo, per @BaluBalu's suggestion.
IOFIX - 1yr.: +18.29% although after last year there really wasn't much place to go but up.
YTD: +13.7%
Yield: 3.98%
I've followed more than a couple of message-threads re: IOFIX and IOFAX. Scary, the way they make it happen. I'm too chicken.
I have shifted to bank loans and short-term TIPs. Next year could be even more challenging with higher rates.
Grateful for all that info. It's an eye-opener. And yet, "what's a mother to do?" Short-term funds, to me, are "return-free risk." Not like STOCKS, of course. Or rather, the risk is in not getting much of anything back on your investment. IG-rated stuff might offer you (me, that is) a monthly dividend which MIGHT cover the cost of an Uber ride somewhere.
PTIAX was paying a 14 cent div. during the mortgage boom. Now it varies, but still better, per share, than my other two. And nowhere near 14 cents anymore. They are all actively managed, and I like that.
We don't normally talk in terms of hard-dollar figures here, about the size of our portfolios. I'm still below a quarter million. 56% in bonds, trying to grow the bond-stake and reduce the proportion in stocks. Last week was a good week for stocks. I'll take it.
IOFIX generated excellent category returns from inception (05/28/2015) through 2019.
IIRC correctly, volatility was low and the Sharpe ratio was high during this period.
The fund then delivered an unpleasant surprise when it returned -36.18% during Q1 2020.
IOFIX seemed like a safe fund for years...
I don't understand exactly why, other than they had a lot of thinly traded bonds that before the Covid crash were being priced only "mathematically as they were almost never traded.
The lesson I took from this is to be very very cautious about funds that buy things you don't completely understand ( ie black box) , especially without a track record to see how the same strategy withstood earlier crashes. Funds with lots of below investment grade bonds will do poorly in an equity correction, as they have in the past.