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Post by Chahta on Aug 27, 2023 13:38:27 GMT
This is a M* article, so you may need to copy and paste the link. I see so many posters doing what this article says about "What bond fund investors get wrong". It is so hard to second guess fund performance, at least for me. Since 2017 when I bought my first bond fund, I have learned so much from all you posters out there across several platforms. Part of the problem is/was giving up growth and accumulation for growth and income, at least for me. When I see posters asking "are you buying bonds or is it time to buy bonds", I am not sure what one would be waiting for. Prices are low and yields are high. Good luck out there. www.morningstar.com/funds/what-bond-fund-investors-get-wrong
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Post by yogibearbull on Aug 27, 2023 14:14:28 GMT
Well, M* likes FUNDS, that is its main business. And M* JR also loves FUNDS - he warmed up to I-Bonds and buying T-Bills/Note only late (I see his posts elsewhere and interact with those there). He even wrote a piece a while ago comparing bond funds and buying T-Bills/Notes, but in his faulty analysis, he assumed that T-Bills/Notes were also sold BEFORE maturity. So, the article should properly be titled - What M* and JR Got Wrong on Bond Funds? What they and many investors forgot was that bond portfolios (ladders, OEFs, ETFs, CEFs) have duration and they take interest rate related hits. The option to hang on to maturity doesn't exist as it does for individually bought T-Bills/Notes (and CDs).
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Post by Chahta on Aug 27, 2023 23:23:27 GMT
yogibearbull, I agree with you if one is sharp enough to time out of T-bills etc. in time to buy funds not too expensive (to avoid the duration risk). When exactly will that be? It is somewhat like buying leveraged CEFs for income with less volatility now that yields are getting up there.
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Post by yogibearbull on Aug 28, 2023 0:31:55 GMT
Nobody will ring the bell when the rates top out. All one can say that we are closer to the top. Moreover, long-term rates aren't controlled by the Fed and there have been wild speculations on where they may go (3-6%).
The normal yield-curve has steepening shape or the one with positive slopes. Right now, the yield-curve has been inverted for quite a while (i.e. with negative slopes). How will the yield-curve normalization occur? That is unclear.
But the rates are high enough now to start extending maturities. Instead of rolling 3m T-Bills, one can roll 6m T-Bills or use 2-yr (variable rate) Treasury FRNs. One may also venture into some bond funds.
Looking at popular CEF PDI, we see that BBW (Bollinger Band Width; it measures short-term volatility) has the range 2.5-20.0 (except 70+ peak during the pandemic). It's near the middle around 8.5 but rising. Bond volatility MOVE around 118 is neither high nor low (VIX is for stocks). So, bond volatility is sort of in the middle, but not low.
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Post by Fearchar on Aug 28, 2023 9:57:11 GMT
yogibearbull , Actually, the FED does have some control on longer term rates. That's what their asset purchase and selling program is all about. Here's the big picture of what has been happening:
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Post by yogibearbull on Aug 28, 2023 11:47:38 GMT
Fearchar , QE & QT do have unknown indirect effects on rates - QE depress them, QT elevate them. It is estimated that months of -$95 billion/mo of QT so far had the net effect of rate boost by +25 bps. QE/QT effect system liquidity more. Bond markets control the long-term rates more than the Fed. Fed controls short-term rates by monitoring bank reserves held at the Fed and, in recent years, by paying interest on those reserves - too high, IMO, at 5.4% (current until the next FOMC). So, banks can earn 5.4% just by parking the money with the Fed and have less incentive to lend. Just a few years ago, the Fed paid 0% on bank reserves.
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Post by Fearchar on Aug 28, 2023 14:32:26 GMT
Not exactly unknown. The FED buys long term paper to lower long term rates. Selling puts upward pressure on longer rates.
Actions of other central banks are a factor as well.
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