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Post by Chahta on Apr 6, 2022 12:47:16 GMT
What is the expected effect when the Fed starts selling? No matter the price paid they will need to sell at market price I assume. Will the amount they sell create an over supply and cause prices to fall? Is it possible bond houses can make deals to purchase quantities at discounts for profit potential?
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Post by FD1000 on Apr 6, 2022 13:22:04 GMT
I'm not smart enough to know what will happen 2-3-6 months down the road but I see lately that rates are going higher while most bond funds are losing money.  |
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Post by chang on Apr 6, 2022 13:37:28 GMT
Selling drives prices down. The Fed doesn’t care what price it buys and sells at. Doesn’t sound like a good situation for bond owners.
Hopefully, municipal bonds won’t be affected as much. Those are the only bonds I own.
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Post by win1177 on Apr 6, 2022 13:41:29 GMT
What is the expected effect when the Fed starts selling? No matter the price paid they will need to sell at market price I assume. Will the amount they sell create an over supply and cause prices to fall? Is it possible bond houses can make deals to purchase quantities at discounts for profit potential? Yes, I imagine they will be selling at whatever the “market price” is for their bonds. Should push rates higher as more “supply” will be hitting the market (bond prices will be dropping), combined with continued Fed action to raise the Fed Funds rate. The bond houses will probably be making some sweet deals (that you and I will not have access to). At least that’s my humble (and not very knowledgeable) opinion. The main issue I have with this is I am NOT a “bond guru” and I have very limited knowledge on when it will be the “best time” to get back into bonds. I will be watching other participants, treasury yields, yield curve, for when to “tiptoe” into bonds. Until then, I’ll be losing money in cash. Win |
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Post by uncleharley on Apr 6, 2022 16:51:14 GMT
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bf22
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Post by bf22 on Apr 6, 2022 16:52:40 GMT
The selling by the Fed should lead to lower bond prices, i.e. higher yields.
However, some bonds will be maturing, and they will just not be rolled over into new bonds. I don't know what the % is of maturing bonds is.
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Post by retiredat48 on Apr 6, 2022 16:54:02 GMT
Yes, I imagine they will be selling at whatever the “market price” is for their bonds. Should push rates higher as more “supply” will be hitting the market (bond prices will be dropping), combined with continued Fed action to raise the Fed Funds rate. The bond houses will probably be making some sweet deals (that you and I will not have access to). At least that’s my humble (and not very knowledgeable) opinion. The main issue I have with this is I am NOT a “bond guru” and I have very limited knowledge on when it will be the “best time” to get back into bonds. I will be watching other participants, treasury yields, yield curve, for when to “tiptoe” into bonds. Until then, I’ll be losing money in cash.Win , yes, the key question in my-added bold above. Nobody knows the "best time", because the fed has never done such Quant Easing via bond purchases. Not sure the extent this is priced-in. I doubt much is priced in. We saw the fed funds rate increase was not very much priced in...now rates zooming. So, this will be the "art-part" of investing. So far, I have not been buying back in. BTW You are not "losing money" in cash. You are losing purchasing power. And all bond investors should keep this distinction. R48 |
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Post by retiredat48 on Apr 6, 2022 17:02:04 GMT
The selling by the Fed should lead to lower bond prices, i.e. higher yields. However, some bonds will be maturing, and they will just not be rolled over into new bonds. I don't know what the % is of maturing bonds is. Agree. The reason the fed initiated purchases was to undergird the bond market in early 2020 COVID downturn. Huge purchases. It worked. Included some high-yield stuff. Bondholders essentially bailed out, IMO. Now the reverse...so bonds negatively impacted, but who knows the extent this is priced-in? Not rolling over the maturing bonds is also a component. The bond issuer must pay off the loan (amount borrowed), and the loan-holder announces he is taking his money elsewhere. Thus the need to reissue more bonds, affecting prices. This is new territory for the fed. Also, will bond rates overshoot on the upside. Hmmmm. R48 |
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Post by Chahta on Apr 6, 2022 17:33:57 GMT
In 2008 it was QE1. The Fed had "toxic" assets (non-agency MBS) it bought. Are those some of what funds Like PIMIX and IOFIX bought later on when the Fed sold?
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Post by win1177 on Apr 6, 2022 17:39:01 GMT
What is the expected effect when the Fed starts selling? No matter the price paid they will need to sell at market price I assume. Will the amount they sell create an over supply and cause prices to fall? Is it possible bond houses can make deals to purchase quantities at discounts for profit potential? Yes, I imagine they will be selling at whatever the “market price” is for their bonds. Should push rates higher as more “supply” will be hitting the market (bond prices will be dropping), combined with continued Fed action to raise the Fed Funds rate. The bond houses will probably be making some sweet deals (that you and I will not have access to). At least that’s my humble (and not very knowledgeable) opinion. The main issue I have with this is I am NOT a “bond guru” and I have very limited knowledge on when it will be the “best time” to get back into bonds. I will be watching other participants, treasury yields, yield curve, for when to “tiptoe” into bonds. Until then, I’ll be losing money in cash. Win As retired at 48 reminded me, “technically” I am losing purchasing power in cash, I am NOT losing money. Hopefully I will lose LESS purchasing power in cash versus buying more bond funds as their prices drop. Win |
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Post by Fearchar on Apr 6, 2022 20:35:29 GMT
The FED is the 900 lb Gorilla of the markets. We are nothing more than ants crawling around in the cage. So, the news is that they "generally agreed" to $95B a month in sales. Phased in over three months starting in May; Max $60B in treasuries and $35B in mortgages. Extremely aggressive talk from what has historically been the worlds largest Dove. Somewhat speculative as to how much the market will collectively bid. On Tuesday, 5 year TIPs were -0.62%. fred.stlouisfed.org/series/DFII5They need to at least get back to near zero. 30 year TIPs are 0.09%. fred.stlouisfed.org/series/DFII30My target is some where between 0.5 to 1.3% |
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Post by Chahta on Apr 7, 2022 12:27:45 GMT
I have posed a question on this for our Q&A next week. I am interested in what professionals potentially buying these bonds think.
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Post by FD1000 on Apr 7, 2022 12:57:56 GMT
I have posed a question on this for our Q&A next week. I am interested in what professionals potentially buying these bonds think. The usual, I don't care what the pros say, I watch charts and they tell me YTD that bank loans is the best category. But even BL are not great, they are a bit positive, which is way better than down 5-8%. |
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Post by Chahta on Apr 7, 2022 13:31:38 GMT
Of course, but I want to hear for learnings sake. They will be a data point just as you are.
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Deleted
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Post by Deleted on Apr 7, 2022 14:57:18 GMT
With mortgage applications in decline, the FED not replacing or selling MBS should not be a problem, and if foreclosures increase significantly bond professionals will find opportunities.
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bf22
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Post by bf22 on Apr 7, 2022 17:04:54 GMT
I have "heard" that most of the 95B will be maturing bonds, thus not being sold.
As somebody said, they are uncreating money that they created earlier.
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Post by bizman on Apr 7, 2022 17:16:35 GMT
I have "heard" that most of the 95B will be maturing bonds, thus not being sold. As somebody said, they are uncreating money that they created earlier. I have heard similar things, that they will be letting bonds roll off as they mature or get prepaid, up to the caps, assumed to be $60B a month in Treasuries and $35B a month in mortgages. The problem with the mortgages though, is that as interest rates rise, there is duration extension risk, which means prepayments will likely not happen. So if they are to actually reduce their holdings in mortgages, they will likely have to actively sell them into the market, which has not been committed to yet. |
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