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Post by mozart522 on Jun 24, 2022 14:34:20 GMT
FD1000, " Why use VGSH and not a guarantee CD/treasury instead?" Because that guarantee comes with a 2-year holding period. Anything less and there is no true guarantee.
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Post by Deleted on Jun 24, 2022 15:19:48 GMT
R48 made a very good point - Expected Fed rate rises are already priced into bonds. At least they should be.
Mozart makes a great point about fixed income choices right now - who wants to get locked in for years in a rising rate environment. Heck - I wouldn't touch a bond right now - of course my bond knowledge ain't so hot! But it is enough to know it's a changing target right now and a lot of interest rate risk for a "safe" asset.
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Post by FD1000 on Jun 25, 2022 1:43:30 GMT
I have been saying the following for at least 10 years. Total return (TR) includes distributions too, that implies that distributions are only a part of TR. But hey, you are looking very hard for any word I said to find something wrong, and play gotcha, you are not the first or last. What? I'm just trying to understand what you meant by 0.8% taking months to reflect 2.56%. You don't need to be so defensive. I'm not defensive, you are the one who knew already my thoughts since I posted them for years many, many times and as I said already "you are looking very hard for any word I said to find something wrong, and play gotcha" |
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Post by FD1000 on Jun 25, 2022 1:52:39 GMT
FD1000 , " Why use VGSH and not a guarantee CD/treasury instead?" Because that guarantee comes with a 2-year holding period. Anything less and there is no true guarantee. Again, you know the answer already. VGSH doesn't give any guarantee. 2 year treasury/CD gives you 2 year guarantee. If you want one year (or another period) buy the treasury/CD that matches it. Why would I gamble on such a low possible performance + high volatility fund such as VGSH? All your supposedly innocent questions have been answered many times in this and other threads. |
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Post by Deleted on Jun 25, 2022 2:25:11 GMT
I think it's a good question - VGSH or a guarantee with a holding period of 2 years. Still interest rate risk with VGSH. I would not hold bonds due to this risk right now. But I wouldn't lock up cash either if I thoughts rates would go up. No safe places right now. Pick your poison.
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Post by chang on Jun 25, 2022 6:30:25 GMT
Keep it on topic, please.
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Post by fishingrod on Jun 25, 2022 13:19:17 GMT
I believe the market HAS priced in the current coming FED hikes of 2022 in most shorter duration bond funds. Longer duration funds have not priced in multiple hikes as much, they have only reacted to the hikes already done.
BUT, as soon as it is announced in July what the next rise actually is (no guessing), then the market will push out its forecast even further according to all relevant info and fear in the market. And existing bonds will be repriced even further down, if inflation is still hard at work. It is just the math and the rule of duration/interest rates. If no other forces were at play then the math calls for another repricing down. Anticipation.
It is so difficult to predict the future.
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Post by mozart522 on Jun 25, 2022 13:27:09 GMT
I think it's a good question - VGSH or a guarantee with a holding period of 2 years. Still interest rate risk with VGSH. I would not hold bonds due to this risk right now. But I wouldn't lock up cash either if I thoughts rates would go up. No safe places right now. Pick your poison. Those of us in a lot of cash are certainly struggling to find places that have a higher yield. I was looking at 4 or 8 week treasuries, but even those might not keep ut with cash (MM), which is now up to 1.38, while the 8 week T-bill went for 1.5 at auction this week. By mid-August, cash should be considerably higher with no risk of down volitility. I did put some cash into some OEFs at the open on Friday. A lucky decision, but at these prices, I expect to do ok in the long run. |
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Post by mozart522 on Jun 25, 2022 13:42:34 GMT
I believe the market HAS priced in the current coming FED hikes of 2022 in most shorter duration bond funds. Longer duration funds have not priced in multiple hikes as much, they have only reacted to the hikes already done. BUT, as soon as it is announced in July what the next rise actually is (no guessing), then the market will push out its forecast even further according to all relevant info and fear in the market. And existing bonds will be repriced even further down, if inflation is still hard at work. It is just the math and the rule of duration/interest rates. If no other forces were at play then the math calls for another repricing down. Anticipation. It is so difficult to predict the future. Agree, fishingrod, However, at what price (or yield) are intermediate bonds a buy? Currently at VG intermediate investment grade is at 4.42%. Should be higher after July. I remember VG high yield got ut to 11% in 2008-9 and was a screaming buy as yields came back down. I have always felt bonds are easier to predict, if not direction, a decent return. But it is important to wait for high yields. |
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Post by fishingrod on Jun 25, 2022 14:19:16 GMT
I believe the market HAS priced in the current coming FED hikes of 2022 in most shorter duration bond funds. Longer duration funds have not priced in multiple hikes as much, they have only reacted to the hikes already done. BUT, as soon as it is announced in July what the next rise actually is (no guessing), then the market will push out its forecast even further according to all relevant info and fear in the market. And existing bonds will be repriced even further down, if inflation is still hard at work. It is just the math and the rule of duration/interest rates. If no other forces were at play then the math calls for another repricing down. Anticipation. It is so difficult to predict the future. Agree, fishingrod , However, at what price (or yield) are intermediate bonds a buy? Currently at VG intermediate investment grade is at 4.42%. Should be higher after July. I remember VG high yield got ut to 11% in 2008-9 and was a screaming buy as yields came back down. I have always felt bonds are easier to predict, if not direction, a decent return. But it is important to wait for high yields.
No argument here. In 2008-2009 I was able to buy some individual investment grade munis that were yielding 7% federal and state tax free. I made my own "muni bond fund".
I held them until maturity. Great move.
I just think if they do raise by 75 bps in July, which I believe they will. Then very quickly we will have money market funds yielding 2+%, which will be competing even more with losing bond funds that are longer duration, especially if we don't go into recession.
The deals will come when the FED brakes due to CPI numbers.
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Post by mozart522 on Jun 25, 2022 14:50:06 GMT
fishingrod,"The deals will come when the FED brakes due to CPI numbers" +1 And they will likely tell us in advance, and I'll have my big trick or treat bag out.
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Post by fishingrod on Jun 25, 2022 16:44:37 GMT
I will add which is only my opinion, That one should NOT expect that the next FED rate rise is priced into their bond fund, and it will not lose value when they next raise. One should expect that if they raise rates by another 75 bps, and you own a bond fund with duration of 2 years, the bond fund will lose roughly 1.5% in NAV. Especially if that fund is a treasury fund.
It is the Rule of duration, isn't it?
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Post by mozart522 on Jun 25, 2022 17:51:38 GMT
fishingrod, I'm not sure. The 2 year treasury is at 3% and the 2 year OEF is at about 2.5, yet the fed has only raised rates by 1.5% so far. One year ago the 2 years yield was .25%. By that standard, the next .75% seems to be built in only if one assumes that the 2 year should only be slightly (25 bp) above the FED rate as it was a year ago. In any event, short term, there is no telling how buyers and sellers may react. If the equity market falls on that 75 bp rise, then the yield may not move at all or actually come down. But better safe than sorry when I don't have a clue.
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Post by fishingrod on Jun 25, 2022 18:21:23 GMT
fishingrod , I'm not sure. The 2 year treasury is at 3% and the 2 year OEF is at about 2.5, yet the fed has only raised rates by 1.5% so far. One year ago the 2 years yield was .25%. By that standard, the next .75% seems to be built in only if one assumes that the 2 year should only be slightly (25 bp) above the FED rate as it was a year ago. In any event, short term, there is no telling how buyers and sellers may react. If the equity market falls on that 75 bp rise, then the yield may not move at all or actually come down. But better safe than sorry when I don't have a clue. I am not sure either. I just think as long as there are signs of rampant inflation, then any FED raises will be followed by more fear of more raises. I also think it more likely that the 2 year Treasury will be at least 70bps above the FED funds rate when it is on the rise, on average.
I think a 2 year bond funds' current yield over the FED funds rate reveals its risk of duration. That duration is not going away.
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Post by FD1000 on Jun 25, 2022 22:18:02 GMT
I think it's a good question - VGSH or a guarantee with a holding period of 2 years. Still interest rate risk with VGSH. I would not hold bonds due to this risk right now. But I wouldn't lock up cash either if I thoughts rates would go up. No safe places right now. Pick your poison. You nailed it. It's an "easy" decision when you know your goals. 1) I would not buy VGSH because of its potential for low performance and high volatility for a ST fund. 2) Do you want to lock your money? How long? 6 months treasury at 2.4% sounds decent. 1 year at 2.85% = decent. 3) If you don't want to lock? MM. This is where I am. My MM is ready to be invested and chances I will make more. 4) If you have a 401K, this is great, you can use stable value funds and switch any time. 5) If you are a decent trader using bond OEFs, you made already and will make much more. All this discussion about what? 1-2%? Great, you can make another 0.5% with great trading. I like to reserve my trading for more. Most have stocks for performance, why take higher risk on VGSH? Risk isn't over yet. Rates rising, inflation, slowing economy, War, VIX is still high. BTW, Gundlach, the bond king with no clothes, made another bad prediction. In March 2022( link 8-9 minute) he said that the yield PEAK for 2 to 30 years treasury will likely be at 2.5%. The yield got to 3.5% just weeks ago. In bond land it's not a good prediction. I have a good idea for a movie: "The rise and fall of the bond king". Of course, nothing can beat Gundlach prediction that the 10 year treasury will be at 6% in 2021. |
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Post by Deleted on Jun 26, 2022 0:49:24 GMT
I think we need to throw out options involving locking up funds for any period. These folks have a lot of cash they want very liquid to deploy. So the choice is really a money market, cash or a short term duration bond fund/etf. Money market is pretty paltry, only slightly better than cash. Not sure what the yield/return on VGSH is, but obviously interest rate risk. Benz has it as an option in some of her 3-10 year options in her bucket strategy.
Pick your poison.
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Post by FD1000 on Jun 26, 2022 15:02:37 GMT
I think we need to throw out options involving locking up funds for any period. These folks have a lot of cash they want very liquid to deploy. So the choice is really a money market, cash or a short term duration bond fund/etf. Money market is pretty paltry, only slightly better than cash. Not sure what the yield/return on VGSH is, but obviously interest rate risk. Benz has it as an option in some of her 3-10 year options in her bucket strategy. Pick your poison. ST funds are not a good choice with low performance + high volatility Benz generic portfolios don't have answers to special situation markets. She is obsessed about buckets, another myth that must be challenged ( link). I haven't looked at her bucket portfolio for years, but I just did. She finally has a lower number of funds. BTW, I don't know what's so hard to stay in MM until things clear up? |
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Post by ignatz on Jun 26, 2022 17:02:39 GMT
I'm picking online savings, no minimum balance, nothing locked up. Mildly poisonous
They have creeped up to over 1 percent. Mine has ticked up twice in the last 30 days after bottoming at .51.
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Post by mozart522 on Jun 26, 2022 17:15:57 GMT
I think we need to throw out options involving locking up funds for any period. These folks have a lot of cash they want very liquid to deploy. So the choice is really a money market, cash or a short term duration bond fund/etf. Money market is pretty paltry, only slightly better than cash. Not sure what the yield/return on VGSH is, but obviously interest rate risk. Benz has it as an option in some of her 3-10 year options in her bucket strategy. Pick your poison. MM up to 1.38% at VG and will be going up. I've started to nibble in several standard etfs. |
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Post by Chahta on Jun 27, 2022 0:51:35 GMT
I think we need to throw out options involving locking up funds for any period. These folks have a lot of cash they want very liquid to deploy. So the choice is really a money market, cash or a short term duration bond fund/etf. Money market is pretty paltry, only slightly better than cash. Not sure what the yield/return on VGSH is, but obviously interest rate risk. Benz has it as an option in some of her 3-10 year options in her bucket strategy. Pick your poison. MM up to 1.38% at VG and will be going up. I've started to nibble in several standard etfs. Is VGSH a "standard ETF"? What are "standard ETFs"? Standard IT or HY? |
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Post by mozart522 on Jun 27, 2022 1:15:14 GMT
Chahta, What I was referring to was value, growth and blend ETFs. In this case SCHD, VUG, and VOO.
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Post by retiredat48 on Jun 27, 2022 15:53:44 GMT
FD1000 ,...who posted: " " BTW, I don't know what's so hard to stay in MM until things clear up?"---------------------------------------------------- You can. Fine. But I have posted herein and elsewhere, my practice over fifty years, of directing cash into higher yielding bond funds, and letting the NAV price fluctuate...even if for shorter terms. Like typically, one could get 3.5% in money market funds; 7% in intermediate or long term, high quality, corporate bond funds. I posted of getting far better returns, on average, going with intermediate, than from MM Funds. Came a time rates (artificially) got so low for years this was not optimal. Not paid enough interest, compared to price risk if rates went back up. So halted the practice. Finally, after several years, we see this happened. That is, rates went up, and bond prices fell a lot...partly due convexity. To me, we are still not there yet to use the intermediate or long term bonds. Too much risk bond rates will go higher...perhaps much higher. And one would have to wait years to get your money back. Which you will do. So, to me, the 2 year is the sweet spot now, where one gets a decent 3% yield, and duration risk/impact is small if rates keep rising. And the 2 yr yield at 3% is about the same yield as the 5 yr...and 10 yr...and 30 yr. Thus it is a great comparable return. Remember, most retiree portfolios are built around a 4% withdrawal rate. Getting three percent in a risk-free return is quite helpful to many. Thus I had my newly-retired brother buy some. He needs about 3.5% from portfolio. IOW I view that holding a 2 yr bond today will yield more than MM funds in the next 6 months or year. Of course MM Fund rate may prevail. But either way, one will not lose. Do this(take the higher yield) over an investing lifetime, and you gain far more in total return...from idle cash. R48
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Post by fishingrod on Jun 27, 2022 17:46:04 GMT
By looking at all the yields and the duration of VGSH. It appears that VGSH IS pricing in the anticipated 75bps FED funds rate increase on July 27th. It also shows an additional yield(.68bps) above the MM to reflect the 1.9 year duration risk over FF rate and Money Markets yield. Current FF rate 150-175 bps Current MM VMFXX 1.38bps Current SEC yield of VGSH 2.81%
What it doesn't reflect is the additional 50bps FF rate rise that may happen on Sept.21st. Or the next potential moves on Nov.2nd, and Dec.14th 2022.
My Question is when does it price that in?
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html |
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Post by Chahta on Jun 27, 2022 19:13:41 GMT
Exactly when should the yield hit 3% for VGSH? It’s currently .8% based on June 1 distribution. In maybe a year?
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Post by Deleted on Jun 27, 2022 19:59:28 GMT
Exactly when should the yield hit 3% for VGSH? It’s currently .8% based on June 1 distribution. In maybe a year? Perhaps estimate the price to buy the fund when its distribution yield is 3%. However, without a managed distribution policy, both market price and yield will fluctuate. For someone with numerous holdings, equity, maybe a couple of CEFs, and cash, it may serve a portfolio purpose. |
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Post by mozart522 on Jun 27, 2022 20:16:07 GMT
By looking at all the yields and the duration of VGSH. It appears that VGSH IS pricing in the anticipated 75bps FED funds rate increase on July 27th. It also shows an additional yield(.68bps) above the MM to reflect the 1.9 year duration risk over FF rate and Money Markets yield. Current FF rate 150-175 bps Current MM VMFXX 1.38bps Current SEC yield of VGSH 2.81%
What it doesn't reflect is the additional 50bps FF rate rise that may happen on Sept.21st. Or the next potential moves on Nov.2nd, and Dec.14th 2022.
My Question is when does it price that in?
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.htmlI think the market is pretty efficient that way. It will wait on those Sept, Nov., and Dec. potential hikes until the FED signals its direction. Is inflation coming down? I the economy running smoothly or tanking? My guess is it will price the move in before they happen once it is convinced that is will happen. |
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Post by mozart522 on Jun 27, 2022 20:34:11 GMT
Exactly when should the yield hit 3% for VGSH? It’s currently .8% based on June 1 distribution. In maybe a year? A 2.58% SEC yield may NEVER see a 2.58% distribution yield. The fund is in discount and the NAV will rise as bonds mature at par. What the 2.58% SEC yield is an indication of is simply a 2.58% future annual TR over its duration assuming all distributions are reinvested. That is a rule of thumb, but not one that always works. For example, it the fund was right on track to have a 2.58% annual return 1 year and 10 months from now, and all of a sudden rates went up 1% in the last two months, you could expect the NAV to fall by about 2% or more. And most of your TR is whiped out. The rule works best for longer duration bonds with normal, orderly interest changes. So this fund has plenty of unknowns. But buying it as a bet that it will perform better than cash in the holding period is not outlandish. And unlike cash, when the rates fall again, the NAV will go up for the fund but not for cash. |
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Post by FD1000 on Jun 27, 2022 20:56:45 GMT
FD1000 ,...who posted: " " BTW, I don't know what's so hard to stay in MM until things clear up?"---------------------------------------------------- You can. Fine. But I have posted herein and elsewhere, my practice over fifty years, of directing cash into higher yielding bond funds, and letting the NAV price fluctuate...even if for shorter terms. Like typically, one could get 3.5% in money market funds; 7% in intermediate or long term, high quality, corporate bond funds. I posted of getting far better returns, on average, going with intermediate, than from MM Funds. Came a time rates (artificially) got so low for years this was not optimal. Not paid enough interest, compared to price risk if rates went back up. So halted the practice. Finally, after several years, we see this happened. That is, rates went up, and bond prices fell a lot...partly due convexity. To me, we are still not there yet to use the intermediate or long term bonds. Too much risk bond rates will go higher...perhaps much higher. And one would have to wait years to get your money back. Which you will do. So, to me, the 2 year is the sweet spot now, where one gets a decent 3% yield, and duration risk/impact is small if rates keep rising. And the 2 yr yield at 3% is about the same yield as the 5 yr...and 10 yr...and 30 yr. Thus it is a great comparable return. Remember, most retiree portfolios are built around a 4% withdrawal rate. Getting three percent in a risk-free return is quite helpful to many. Thus I had my newly-retired brother buy some. He needs about 3.5% from portfolio. IOW I view that holding a 2 yr bond today will yield more than MM funds in the next 6 months or year. Of course MM Fund rate may prevail. But either way, one will not lose. Do this(take the higher yield) over an investing lifetime, and you gain far more in total return...from idle cash. R48
I posted hundreds of times that cash is trash. Let's rehash what I said again. The markets were different in the past, Fed was supportive. In the last several months stocks and bonds are losing, risk is higher than normal, Fed told us they are tightening and raising rates, unless you can convince me that risk is over, I'm very careful. This thread is started on the assumption that soon would be a good time. 2 months later, it wasn't. Then VGSH lost 1.7% in just 2 weeks, pretty bad for a ST fund. So, for about 10 weeks from the start of this thread, VGSH was terrible. The rebound started for VGSH in mid June. I'm still not convinced. The whole idea for me has been better risk/reward and VGSH is not the one, especially, when I can use CD/treasury for 6-24 months, or MM for someone who waits for a better entry. Short term will take care of the long term, always did. If you don't want to trade based on markets, then just hold. Attachments:
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Post by retiredat48 on Jun 27, 2022 22:22:11 GMT
Exactly when should the yield hit 3% for VGSH? It’s currently .8% based on June 1 distribution. In maybe a year? A 2.58% SEC yield may NEVER see a 2.58% distribution yield. The fund is in discount and the NAV will rise as bonds mature at par. What the 2.58% SEC yield is an indication of is simply a 2.58% future annual TR over its duration assuming all distributions are reinvested. That is a rule of thumb, but not one that always works. For example, it the fund was right on track to have a 2.58% annual return 1 year and 10 months from now, and all of a sudden rates went up 1% in the last two months, you could expect the NAV to fall by about 2% or more. And most of your TR is whiped out. The rule works best for longer duration bonds with normal, orderly interest changes. So this fund has plenty of unknowns. But buying it as a bet that it will perform better than cash in the holding period is not outlandish. And unlike cash, when the rates fall again, the NAV will go up for the fund but not for cash. Also, some posters may still be having difficulty grasping that if underlying bonds are selling "below par" (like a $1000 face value bond is selling for $970), that at maturity the bond will pay par, and the fund will have a capital gain. This is credited to the fund daily. (Accretion--thanks fishingrod!). R48 |
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Post by FD1000 on Jun 28, 2022 3:47:26 GMT
A 2.58% SEC yield may NEVER see a 2.58% distribution yield. The fund is in discount and the NAV will rise as bonds mature at par. What the 2.58% SEC yield is an indication of is simply a 2.58% future annual TR over its duration assuming all distributions are reinvested. That is a rule of thumb, but not one that always works. For example, it the fund was right on track to have a 2.58% annual return 1 year and 10 months from now, and all of a sudden rates went up 1% in the last two months, you could expect the NAV to fall by about 2% or more. And most of your TR is whiped out. The rule works best for longer duration bonds with normal, orderly interest changes. So this fund has plenty of unknowns. But buying it as a bet that it will perform better than cash in the holding period is not outlandish. And unlike cash, when the rates fall again, the NAV will go up for the fund but not for cash. Also, some posters may still be having difficulty grasping that if underlying bonds are selling "below par" (like a $1000 face value bond is selling for $970), that at maturity the bond will pay par, and the fund will have a capital gain. This is credited to the fund daily. (Accretion--thanks fishingrod!). R48 Only problem is the fact, that you can buy a guarantee CD/Treasury now for 6-12 months, at 2.5-3% without guessing, so why in the world you need VGSH? But, someone doesn't want to discuss the above option. If you want to hold VGSH more than 6 months, why take the risk? If you are a trader, we will have better trades, we actually had HY Munis which made several % in just one week. Any way you look it, the risk/reward isn't great with a possible low return + high volatility = plenty of unknowns
So again:
1) If you want something for 6-12 months, use CD/Treasury.
2) If you want flexibility to trade, use MM.
3) If you want to play, buy lottery tickets, it's only $1 each.
Let's discuss it several more pages.
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