mikes425
Commander
generally happy in semi-retirement and dividend income-land
Posts: 126
|
Post by mikes425 on Nov 15, 2023 15:30:12 GMT
Just trying to wrap my head around what drives interest rates higher, despite the good news about inflation this week, particularly TIPS for example. Perplexing bond market behavior continues.
|
|
|
|
Post by steadyeddy on Nov 15, 2023 16:42:15 GMT
Just trying to wrap my head around what drives interest rates higher, despite the good news about inflation this week, particularly TIPS for example. Perplexing bond market behavior continues. It could be profit taking from the sharp drop in yields in the last 2 weeks... 10 Yr T yield up by 8 basis points, not a significant move. Yesterday 1o Yr T yield fell about 16 basis points. Also, while inflation seems to be dipping lower, it is unclear if we are on a path to 2% inflation any time soon. |
|
|
|
Post by liftlock on Nov 15, 2023 17:21:36 GMT
Just trying to wrap my head around what drives interest rates higher, despite the good news about inflation this week, particularly TIPS for example. Perplexing bond market behavior continues. One factor is the Federal Government's need to issue a growing amount of bonds to fund the US deficit. This results in market fear that rates may need to be higher in order to attract buyers. |
|
|
|
Post by FD1000 on Nov 15, 2023 19:17:07 GMT
Just trying to wrap my head around what drives interest rates higher, despite the good news about inflation this week, particularly TIPS for example. Perplexing bond market behavior continues. The above little, tiny, small question is complicated. The long answer is blah, blah, blah. The short answer is I don't know. The next answer is DEPENDS. If you can tell me where rates will be in 1-3-6 months, I can tell you what to own. Gundlach, the king (without cloths) of bonds, predicted in 2016 that the 10 year treasury to be 6% by 2021, see (www.barrons.com/articles/gundlach-bond-yields-could-hit-6-in-five-years-1478929496) and again in 2018(www.cnbc.com/2018/09/20/doublelines-gundlach-warns-us-treasury-yields-are-headed-higher.html). Reality: On 12-31-2021 it was at about 1.5%. On 11/3/2022(a year ago) (https://markets.businessinsider.com/news/stocks/jeffrey-gundlach-doubleline-fed-interest-rates-hikes-inflation-recession-stocks-bonds-11) "Bond billionaire Jeffrey Gundlach says the Fed will only hike rates to 4.5%" Reality: The Fed controls the ST via Fed fund rates which now is around 5.3%, see (https://fred.stlouisfed.org/series/FEDFUNDS). So, if Gundlach have been making huge bad predictions, how can I predict it...why anyone wants to do it anyway? Every time they asked the Fed chair Powell about rates, he said "data depended" = I really don't know when and how much we will do. Conclusion: 1) Investing based on prediction isn't recommended. 2) Investing based on diversification can be off by years + have higher volatility. In the last 5 years typical high-rated bonds, AKA BND=index made about 0.5% annually, others made 2-3%, all lagged the inflation + had a huge volatility. I heard several "experts" who said use barbell, it didn't work either. That applies to stocks too. If you owned EM, SC, Value since 2010, you made less money with more volatility. 4) Many listen to these experts and actually lose money or lag behind MM because predictions are difficult. The market controls the LT rate. When the market is sure where rates will be, the change is pretty fast and many investors wake up too late. 5) So what to do? you probably heard it already. If you want to be a good trader, practice a lot and make sure it works for you...or...own limited number of funds according to your goals and hardly trade, you will save a lot of time. 6) Most economic stuff isn't trivial or depends on one thing. |
|
mikes425
Commander
generally happy in semi-retirement and dividend income-land
Posts: 126
|
Post by mikes425 on Nov 15, 2023 20:31:36 GMT
|
|
|
|
Post by habsui on Nov 16, 2023 22:30:07 GMT
Of course, he really doesn't answer your original question. One reason is the fear that there is/will be an oversupply of treasuries to finance the federal debt which will drive prices down and rates up.
Good investing..
|
|
mikes425
Commander
generally happy in semi-retirement and dividend income-land
Posts: 126
|
Post by mikes425 on Nov 16, 2023 23:17:59 GMT
Well, with the major NAV losses in bond funds i’m carrying I have little choice but to hold indefinitely and hope that one day I can at least say I broke even. This has
easily been the most frustrating two years of my investing lifetime.
|
|
|
|
Post by FD1000 on Nov 16, 2023 23:20:25 GMT
Of course, he really doesn't answer your original question. One reason is the fear that there is/will be an oversupply of treasuries to finance the federal debt which will drive prices down and rates up.
Good investing..
Because it depends. The best "experts" have been wrong for about 2 years, but now we have the answer, rates are going up. |
|
mikes425
Commander
generally happy in semi-retirement and dividend income-land
Posts: 126
|
Post by mikes425 on Nov 17, 2023 0:01:02 GMT
FD1000 , habsui , ummmmm…ok, wait. WHAT?? You’re telling me that now, after the worst year in bond market history, bonds and bond funds are destined to plummet still lower? Predicated on what?
|
|
|
|
Post by fishingrod on Nov 17, 2023 0:28:43 GMT
Well, with the major NAV losses in bond funds i’m carrying I have little choice but to hold indefinitely and hope that one day I can at least say I broke even. This has easily been the most frustrating two years of my investing lifetime. You started investing with bonds probably at the worst time in your lifetime. Things will get better. Yields are way higher. FED may be done for now. Fluctuations will still happen just not as large, to be almost certain. There is no straight line. |
|
|
|
Post by richardsok on Nov 17, 2023 0:29:37 GMT
FD1000 , habsui , ummmmm…ok, wait. WHAT?? You’re telling me that now, after the worst year in bond market history, bonds and bond funds are destined to plummet still lower? Predicated on what? Please elaborate and substantiate in detail, because that doesn’t make sense, and i’d really like others to either validate or likewise question your premise to support this CLAIM. You say “now we have the answer” 🤣?? What “answer” was “issued” pray tell? Mike -- Here we go again; talk to ten investors and get eleven opinions. Right now, I'll agree with you -- it appears that bond funds MUST rise from now. Nevertheless we COULD be wrong. But you don't have to hold opinions, nor listen to them. Pardon me for repeating myself -- slow-moving bond funds make beautiful trading assets because when they change direction, they act like bowling balls -- they tend to maintain that new direction. I'm not going to debate with FD or habsui, I'm just going to watch the bond ETF charts with medium-time moving averages, with their cross-overs as my trading points. A couple of days after I picked up BUY signals on AGG and IEF (around Nov 6, to be precise) I bought a new position in TLTW. (It's on the BSW thread. Check me out.) Now I could have gone straight to AGG or something similar, but I wanted a bond fund with a little more speculation or "kick" for my first buy. If I increase my bond allocation, I might go into a more conservative medium-term corporate ETF or CEF. And I won't try to have an opinion -- I will just avoid arguing with my moving averages..... and if FD & hab are correct, I'll know it soon enough. Make a point of following the technicals and you will too.  |
|
|
|
Post by fishingrod on Nov 17, 2023 0:32:05 GMT
|
|
|
|
Post by richardsok on Nov 17, 2023 1:54:22 GMT
insert code here
Ok and just to reinforce a very basic premise of strategic Asset Allocation; It isn’t about market timing, and maybe I’m confronting advocates of a new paradigm of investing theory but AFAIK a moderate AA PF is still based on bonds and equities. Is the “message” suddenly that market timing is the mew paradigm, and one should trade in and out on a month to month basis for a long term goal? Sure is the mixed signal I get on this board from some contributors…I just generally roll with an FA’s recommendations and unless the new normal is to dismiss the bond sector entirely as a component of a traditional Balanced PF ( because…what IS the scary smart ALTERNATIVE i havent heard about here..😏) :I don’t think all- equities or all Cash “trumps” my approach…but again, i’m not a day trader so, maybe this is the wrong forum for me? LOL
I wouldn't call market timing any sort of new paradigm -- especially for long-time investors. Several people on these boards, R48, win, bigseal and others have told us they amassed relative fortunes the old-fashioned way. They saved and saved and accumulated and held as far back as the 1950s until today. For these people, I wouldn't dream of discussing a different system even if I believe that the investing future will be very different from years past. Back on the old Morningstar forum we used to have contentious debates about investing for income vs total return. I believed then, as now, that the only measurements that matter to the logical investor are one's total return and the risks one takes Long and bitter experience has taught us that bonds and equities often do NOT act as effective diversifiers. In fact, many times they act in sharp sympathy, and often (unfortunately!) are harnessed on the way DOWN. AOM is the ETF I typically watch on those relatively rare times I check the progress of moderate asset allocations. It, too goes up --- and down. ![]() ![]()  Attachments:
|
|
|
|
Post by gman57 on Nov 17, 2023 2:36:34 GMT
Well, with the major NAV losses in bond funds i’m carrying I have little choice but to hold indefinitely and hope that one day I can at least say I broke even. This has easily been the most frustrating two years of my investing lifetime. Interest rates will come down at some point. Could be soon or might be a while but they will come down. Then your NAV losses should recover. In the mean time you should be collecting decent interest payments. The worst thing you can do is lock in your losses IMHO. I did that once, one of the mistakes I made along the way... and regret. I broke my rule of sticking to my asset allocation through ups and downs. |
|
mikes425
Commander
generally happy in semi-retirement and dividend income-land
Posts: 126
|
Post by mikes425 on Nov 17, 2023 19:57:47 GMT
I wouldn't call market timing any sort of new paradigm -- especially for long-time investors. Several people on these boards, R48, win, bigseal and others have told us they amassed relative fortunes the old-fashioned way. They saved and saved and accumulated and held as far back as the 1950s until today. For these people, I wouldn't dream of discussing a different system even if I believe that the investing future will be very different from years past. Back on the old Morningstar forum we used to have contentious debates about investing for income vs total return. I believed then, as now, that the only measurements that matter to the logical investor are one's total return and the risks one takesLong and bitter experience has taught us that bonds and equities often do NOT act as effective diversifiers. In fact, many times they act in sharp sympathy, and often (unfortunately!) are harnessed on the way DOWN.AOM is the ETF I typically watch on those relatively rare times I check the progress of moderate asset allocations. It, too goes up --- and down.![]() ![]() Good perspectives. Thanks! |
|
mikes425
Commander
generally happy in semi-retirement and dividend income-land
Posts: 126
|
Post by mikes425 on Nov 17, 2023 19:59:08 GMT
Well, with the major NAV losses in bond funds i’m carrying I have little choice but to hold indefinitely and hope that one day I can at least say I broke even. This has easily been the most frustrating two years of my investing lifetime. Interest rates will come down at some point. Could be soon or might be a while but they will come down. Then your NAV losses should recover. In the mean time you should be collecting decent interest payments. The worst thing you can do is lock in your losses IMHO. I did that once, one of the mistakes I made along the way... and regret. I broke my rule of sticking to my asset allocation through ups and downs. Thanks! I share your sentiments on that! |
|
mikes425
Commander
generally happy in semi-retirement and dividend income-land
Posts: 126
|
Post by mikes425 on Nov 17, 2023 20:01:33 GMT
Mike -- Here we go again; talk to ten investors and get eleven opinions. Right now, I'll agree with you -- it appears that bond funds MUST rise from now. Nevertheless we COULD be wrong. But you don't have to hold opinions, nor listen to them. Pardon me for repeating myself -- slow-moving bond funds make beautiful trading assets because when they change direction, they act like bowling balls -- they tend to maintain that new direction. I'm not going to debate with FD or habsui, I'm just going to watch the bond ETF charts with medium-time moving averages, with their cross-overs as my trading points. A couple of days after I picked up BUY signals on AGG and IEF (around Nov 6, to be precise) I bought a new position in TLTW. (It's on the BSW thread. Check me out.) Now I could have gone straight to AGG or something similar, but I wanted a bond fund with a little more speculation or "kick" for my first buy. If I increase my bond allocation, I might go into a more conservative medium-term corporate ETF or CEF.
And I won't try to have an opinion -- I will just avoid arguing with my moving averages..... and if FD & hab are correct, I'll know it soon enough. Make a point of following the technicals and you will too.
Thanks for your perspective! I appreciate your points! View Attachment |
|
|
|
Post by FD1000 on Nov 17, 2023 22:37:37 GMT
Your view of market are correct for most. Own a diversified portfolio, I added hardly trade. Sounds good? yes But, but, the exceptions we had since 1995 are so unique, that diversifications didn't work. 1995-2000=SPY/QQQ 2000-2010=SPY lost money in 10 years 2010-2023(except 2022)=SPY+QQQ 2022 both stocks+bonds lost a lot. The inflation went up rapidly so much and the Fed guarantee a very quick raise, you lost a lot of money in bonds, the ones that suppose to ballast your portfolio + stocks lost a lot. Suppose you go with 60/40=VBINX vs VFINX(SP500). Since 1995( chart). In theory 60/40 suppose to do about 70%, in reality it did less than 50%. Buffet one of the best investors in the last several decades said the following: Rule No. 1: Never Lose Money. Rule No. 2: Never Forget Rule No. 1 and Rule 3: Diversification is a protection against ignorance. If you can't do the above, his second best choice = SP500. Another myth: small changes of 1-2-3% each time are just feel good stuff, but have very little influence on your portfolio. Bottom line: theories work over a very LT, think 50 years, the next 3-5-10 years can be very unique. When you are a retiree, you have a lot less time. If you just retired and markets go down 20-30% and it take them 5-7 years to recover, you might have to go working again or lower your life standard. |
|
mikes425
Commander
generally happy in semi-retirement and dividend income-land
Posts: 126
|
Post by mikes425 on Nov 17, 2023 23:47:01 GMT
Your view of market are correct for most. Own a diversified portfolio, I added hardly trade. Sounds good? yes
But, but, the exceptions we had since 1995 are so unique, that diversifications didn't work.
1995-2000=SPY/QQQ
2000-2010=SPY lost money in 10 years
2010-2023(except 2022)=SPY+QQQ
2022 both stocks+bonds lost a lot. The inflation went up rapidly so much and the Fed guarantee a very quick raise, you lost a lot of money in bonds, the ones that suppose to ballast your portfolio + stocks lost a lot.
(EDIT)
Bottom line: theories work over a very LT, think 50 years, the next 3-5-10 years can be very unique. When you are a retiree, you have a lot less time. If you just retired and markets go down 20-30% and it take them 5-7 years to recover, you might have to go working again or lower your life standard. FD, Thanks. Yes, I think the fundamental point is that indeed, the thing that's forever been confidently assured by the financial advice community --didn't work as it was supposed to. Bonds. the "ballast" in a storm...? Were, in actuality, the most devastating component of a "conservative/moderate" portfolio...and just standing by and doing nothing - effectively the advice (or lack thereof) I received - meant I remained fully exposed to the drawdown of assets in bond funds. Reallocating to shortest duration from longer term lessened the impact but...the reality is, NAV losses in bonds were far worse than equity funds. As you suggest...'unique' happens. As for the next 3-5-10 years...I don't feel I have to worry about a 20-30% market decline and 5-7 year recovery timeframe (worst case scenario you're presumably citing). A) Maybe that doesn't happen at all. B) If it does, I believe I have accumulated "enough" ...in combination with my propensity for not spending extravagantly, or needing an 8% withdrawal rate. On that note, kudos to Jack Bogle for reminding people of the sensible meaning of "Enough." |
|
|
|
Post by steadyeddy on Nov 18, 2023 1:04:20 GMT
The main thing with bonds is to use an active bond fund with a reputed manager - such as PIMCO - and not bond index funds. See chart that compares PIMX to BIV and BND over a long stretch of time. Every market cycle teaches a lesson. Note: There is no guarantee PIMIX can continue to weather future financial storms. |
|
|
|
Post by Chahta on Nov 18, 2023 1:20:39 GMT
Well, with the major NAV losses in bond funds i’m carrying I have little choice but to hold indefinitely and hope that one day I can at least say I broke even. This has easily been the most frustrating two years of my investing lifetime. Hopefully you have been reinvesting the yield. If so you have more shares to provide more income at higher yield than those that buy down the road. It was just apinful getting there. In my estimation rates go up because buyers of debt require more interest for the risk they are taking or to attract buyers of the debt. As far as bonds acting as ballast, this time we hit a perfect storm. Zero interest rates (once in a lifetime event) and high inflation (rare event). But those that use bonds funds for income still got their income. |
|
|
|
Post by Mustang on Nov 18, 2023 3:12:00 GMT
FD, Thanks. Yes, I think the fundamental point is that indeed, the thing that's forever been confidently assured by the financial advice community --didn't work as it was supposed to. Bonds. the "ballast" in a storm...? Were, in actuality, the most devastating component of a "conservative/moderate" portfolio...and just standing by and doing nothing - effectively the advice (or lack thereof) I received - meant I remained fully exposed to the drawdown of assets in bond funds. I own moderate- and conservative-allocation funds and I couldn't disagree more. But, instead of doing nothing I have been buying continuously. When interest rates come down (maybe a year of so) they will recover nicely. And bonds were far from the most devastating part of a balanced fund. Let's look at some storms:
2000 2001 2002 2008 2018 2022 SPY 100% Stock - 9.7 -11.8 -21.6 -36.8 -4.6 -18.2 VBINX 60% Stk -2.0 -3.0 -9.5 -22.2 -3.0 -17.0
VWENX 65% Stk +10.4 +4.2 -6.9 -22.3 -3.4 -14.3 ABALX 60% Stk +15.9 +8.2 -6.3 -25.7 -2.7 -12.1 VWINX 40% Stk +16.2 +7.4 +4.6 -9.8 -2.6 -9.1
Even the balanced index fund beats 100% stocks during a downturn.
The disappointment came in 2022. Bonds provided downturn protection but not as much as expected. VWENX's loss was only 78.5% of SPY. ABALX's loss only 66.5%. Both higher than their percent of stock. This was because Fed rates were near zero and bond values dropped as well when rates went up. Not as much as stocks but they did drop. If they had dropped as much as stocks then the balanced funds losses would have been the same as SPY.
The conservative allocation fund VWINX with its larger proportion of bonds was better yet. It posted a gain instead of a loss in 2002. Its loss was only 26.6% of SPY in 2008 and only half of SPY in 2022. Higher than the 40% stock portion but again the Fed had rates at near zero. Historically, that is a bit unusual.
In 2022 the bond portion of a balanced fund was a bit disappointing but far from devastating. It seems to me that both moderate- and conservative-allocation funds did their job.
|
|
|
|
Post by steadyeddy on Nov 18, 2023 3:57:18 GMT
FD, Thanks. Yes, I think the fundamental point is that indeed, the thing that's forever been confidently assured by the financial advice community --didn't work as it was supposed to. Bonds. the "ballast" in a storm...? Were, in actuality, the most devastating component of a "conservative/moderate" portfolio...and just standing by and doing nothing - effectively the advice (or lack thereof) I received - meant I remained fully exposed to the drawdown of assets in bond funds. I own moderate- and conservative-allocation funds and I couldn't disagree more. But, instead of doing nothing I have been buying continuously. When interest rates come down (maybe a year of so) they will recover nicely. And bonds were far from the most devastating part of a balanced fund. Let's look at some storms:
2000 2001 2002 2008 2018 2022 SPY 100% Stock - 9.7 -11.8 -21.6 -36.8 -4.6 -18.2 VBINX 60% Stk -2.0 -3.0 -9.5 -22.2 -3.0 -17.0
VWENX 65% Stk +10.4 +4.2 -6.9 -22.3 -3.4 -14.3 ABALX 60% Stk +15.9 +8.2 -6.3 -25.7 -2.7 -12.1 VWINX 40% Stk +16.2 +7.4 +4.6 -9.8 -2.6 -9.1
Even the balanced index fund beats 100% stocks during a downturn.
The disappoint came in 2022. Bonds provided downturn protection but not as much as expected. VWENX's loss was only 78.5% of SPY. ABALX's loss only 66.5%. Both higher than their percent of stock. This was because Fed rates were near zero and bond values dropped as well. Not as much as stocks but they did drop. If they had dropped as much as stocks then the balanced funds losses would have been the same as SPY.
The conservative allocation fund VWINX with its larger proportion of bonds was better yet. It posted a gain instead of a loss in 2002. Its loss was only 26.6% of SPY in 2008 and only half of SPY in 2022. Higher than the 40% stock portion but again the Fed had rates at near zero. Historically, that is a bit unusual.
In 2022 the bond portion of a balanced fund was a bit disappointing but far from devastating. It seems to me that both moderate- and conservative-allocation funds did their job.
, your assessment is right on the money. For those that are B&H this post is perhaps the best I have seen on this thread. Stick with your plan and don't chase shiny objects - you will get to where you want to go. OTOH if you are a trader, there are many roads that could keep you happy. |
|
|
|
Post by Chahta on Nov 18, 2023 12:09:37 GMT
“Mustang , your assessment is right on the money. For those that are B&H this post is perhaps the best I have seen on this thread. Stick with your plan and don't chase shiny objects - you will get to where you want to go. OTOH if you are a trader, there are many roads that could keep you happy.”
For all the bickering about methods, only one thing counts. If your portfolio produces what you want and need for money to fund retirement then you are a success.
It constantly amazes me that people hate on bond fund drawdowns, but give equities a free pass; “They will always recover.” And bonds won’t? I have realized that equities are the golden ones because they grow and no matter who you are, you need to see growth.
|
|
mikes425
Commander
generally happy in semi-retirement and dividend income-land
Posts: 126
|
Post by mikes425 on Nov 18, 2023 20:22:41 GMT
I have realized that equities are the golden ones because they grow and no matter who you are, you need to see growth. True. I think that's exactly why the bond fund drawdowns are harder to keep in perspective. |
|
|
|
Post by uncleharley on Nov 29, 2023 23:20:53 GMT
Todays market observation is that the 2, 5, 10, & 30 yr treasury rates continue to their 5 week trend down. That tells me that real time rates in the real market world are going down. I fail to understand all the chatter about interest rates staying higher for longer. I am very open to any explanation.
|
|
|
|
Post by yogibearbull on Nov 29, 2023 23:32:17 GMT
For a while, the Fed and fed fund traders (as reflected in CME FedWatch data) were getting on the same page. But suddenly, the fed fund traders are thinking that Powell is bluffing, and will cut rates as soon as February, and multiple times in 2024. This can only end badly.
|
|
|
|
Post by rhythmmethod on Nov 29, 2023 23:34:29 GMT
Todays market observation is that the 2, 5, 10, & 30 yr treasury rates continue to their 5 week trend down. That tells me that real time rates in the real market world are going down. I fail to understand all the chatter about interest rates staying higher for longer. I am very open to any explanation. I hope the chatter continues. I've been building my FI side and will continue for a few months. I looked at my horoscope and it was very clear '24 is going to be a good year for FI. Forward projection. Hold me to it! Good luck! |
|
sgra
Lieutenant
Posts: 58
|
Post by sgra on Nov 30, 2023 2:31:40 GMT
For a while, the Fed and fed fund traders (as reflected in CME FedWatch data) were getting on the same page. But suddenly, the fed fund traders are thinking that Powell is bluffing, and will cut rates as soon as February, and multiple times in 2024. This can only end badly. "End badly" meaning 1) the fed funds traders are wrong and will get burned or 2) the Fed will cut rates too soon and trigger more inflation, or ? |
|
|
|
Post by mnfish on Nov 30, 2023 11:28:47 GMT
GDP just increased over 5% annually, why would Powell cut rates? It seems the traders are forecasting a slow-down in 2024?
|
|
