SA article (
https://seekingalpha.com/article/4625927-federal-funds-rate-is-going-down-what-about-bond-prices?mailingid=32345426&messageid=2850&serial=32345426.3245)
I can read all SA articles for free for years and never paid anything.
Quote (excerpts)
"Summary
The Federal Reserve will likely cut rates next year.
Rate cuts might impact bond prices, depending on their magnitude, and on market expectations.
Market expectations are very dovish, and more dovish than the Fed. Higher bond prices seem unlikely.
A look at federal reserve rates, expectations thereof, and their possible impact on bond prices follows.
.................................
Investor Takeaway
Investors expect significant federal reserve interest rate cuts in the coming years, and are pricing treasuries and other bonds accordingly. Due to this, small rate cuts will likely have limited impact on bond rates and prices.
Under these conditions, I would personally invest in T-bills and other short-term bonds over longer-term securities. These have higher yields and lower interest rate risk. Longer-term securities yield more, are riskier, and are pricing-in an aggressive set of fed hikes already."
Comments
FWIW - Rick Rieder, highly experienced lead fixed income manager at Blackrock, is managing a new fixed income ETF (BINC) that received favorable press recently. (Might have been in Barron’s - not sure.) I don’t own. But others might want to take a look.
You can own 10 bond funds and still have higher volatility + lower performance.
The article predicts stability for the coming months to 2024. The Fed funds watch tool predicts mostly a stable 5.25-5.5% until March 2024.
Even if a fund has experienced managers, they can't do too much. Most lost money in 2022.
Sometimes, special funds do better than most.
Example:
DODIX+PIMIX are great funds + more flexible in their categories.
Since 01-01-2022 both are down. RCTIX is up with lower volatility
(https://schrts.co/hieByVgX)
YTD: RCTIX still made more with lower volatility. See the chart (https://schrts.co/nWzudGjU)
I can add 5 more funds with different duration + bond ratings + flexibility and all 7 still made less than RCTIX. There are better options than RCTIX YTD.
PLW is an ETF investing in a Treasury ladder. (But it might behave differently than building your own ladder.) A number of folks here build their own.
”The investment (PLW) seeks to track the investment results (before fees and expenses) of the Ryan/Nasdaq U.S. 1-30 Year Treasury Laddered Index. The fund generally will invest at least 80% of its total assets in the components of the index. Strictly in accordance with its guidelines and mandated procedures, Nasdaq, Inc. oversees the index, and which seeks to measure the potential returns of a theoretical portfolio of U.S. Treasury securities with a yield curve based upon 30 distinct annual maturities.” From Morningstar
I don’t do ladders - but laddering on your own makes a lot of sense. Others may have suggestions.
You can see that DODIX has the best performance + the lowest volatility. PLW has the worse performance + the highest volatility of 7.5+%.(peak to trough).
So, the ETF PLW has duration 10.80 (M* Portfolio tab below) and SD 9.07 (M* Risk tab) - plenty volatile!
https://www.morningstar.com/etfs/xnas/plw/portfolio
But if you had a private/DIY ladder, you would let each bond in the ladder mature at par, so the duration effect will be only if you have to liquidate ladder prematurely, not otherwise.
Just because a fund uses the term "ladder" doesn't mean that it will act as private/DIY ladder. Some DIY stuff you really have to do yourself and cannot farm it out to funds.
Treasury ladder didn't help you either because treasuries are not where you want to be.
‘22 was a rough year for bonds. So the numbers @BenWP cited don’t surprise me. I looked at 3 “tamer” bond or fixed income funds for comparison. Each sported a -11% return in 2022: DODIX, RPSIX, PRGMX.
BTW - I’ve saved 5-6 various bond ETFs to my watchlist if anyone needs a suggestion. The Bloomberg 10-Year Target Index (XTEN) looks about as aggressive as I’d want to be. Unlike Mr. Bond, I’d suggest it be “shaken” (traded often) rather than “stirred” (held in hand).
BTW, Treasury 2-yr FRNs are different - they yield 3m T-Bill yield plus a spread; they reset weekly.
(Apologies. FT makes it near impossible for its subscribers to share articles.)
I don't listen to a perma bear such as David Rosenberg. Most generic typical core funds can't handle the situation too well. DODIX, a good fund, made YTD just 1.6% with high volatility of 4% from peak to trough, while MM=VMFXX made 2.8% and RSIIX/RSIVX+CBLDX did a much better job.
see (https://schrts.co/mnyiJCSG)
Just My Opinion, and I do not currently own any FR/BL funds, and haven't for a few years.
My older comments were for FR/BL that were HY. A problem with many of these is that many are from banks to shaky companies that cannot access the regular bond market. For them, it become hard to roll FR/BL when times get tough. Banks are also under more strict regulatory pressures.
I have just gotten into Treasury FRNs via Auctions or ETFs.
See below several excerpts.
How Do T-Bills And BIL Stack Vs. Other Asset Classes?
Aug. 19, 2023 5:31 AM ETSPDR® Bloomberg 1-3 Month T-Bill ETF (BIL)2 Comments
Juan de la Hoz
Summary
Higher Fed rates have led to higher rates on most bonds and fixed-income securities.
T-bills have benefited more than most and currently yield +5.4%.
An analysis and peer comparison of t-bills follows.
In my opinion, the overall risk-return profile of t-bills is currently quite attractive, due to their above-average yields and extremely low level of risk. As such, t-bills are fantastic investment opportunities, and particularly well-suited for more risk-averse investors. Investors seeking higher yields might prefer riskier, higher-yielding securities, while more dovish investors might prefer longer-term securities, to lock-in their yields.
I'll be focusing on the SPDR Bloomberg 1-3 Month T-Bill ETF (NYSEARCA:BIL) for this article, but everything here should apply to most other t-bill funds, and to the securities themselves.
BIL invests in t-bills, which are securities issued by the U.S. Federal Government, the strongest, most credit-worthy institution in the world. Credit risk is effectively nil, as are default rates, barring an unprecedented U.S. default. Due to this, BIL should see negligible losses during downturns and recessions, outperforming high-yield bonds and senior loans. On the other hand, the fund lacks the flight-to-quality effect of treasuries, especially longer-term treasuries, and so should underperform these securities during recessions.
BIL invests in t-bills, securities with very low maturities, duration, and interest rate risk / exposure. All of these are significantly lower than average, lower than most other bond sub-asset classes, but roughly comparable to senior loans.
Conclusion
T-bills currently offer investors above-average yields, very low overall risk, and a very strong overall risk-return profile. As such, and in my opinion, t-bills are fantastic investment opportunities, and particularly well-suited for more risk-averse investors.
Owning longer duration government bonds may be more profitable in the not-too-distant future.