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Post by mnfish on Apr 9, 2024 11:55:55 GMT
I thought I would copy some of the posts from the PyrUp thread. @chang, fishingrod , Fearchar , @chahta Apr 7, 2024 at 12:31pm Fearchar said: For now don't fight the FED. Stay patient and keep durations short (MM or 3M T-Bills). Enjoy the distributions while they last. Inverted yield curves don't last forever. Fishingrod said: I don't understand the logic in staying in MM and waiting for the yield curve to uninvert. What is the waiting for? Won't longer bonds be even more expensive then? Or will you ride the MM yield down until it crosses the yield of the longer duration bond and then switch? Won't you pay more for that long bond then? I am really not getting it. While I will admit and acknowledge that MM has been THE way for a while, except for stocks and high yield corporate bonds lately. I don't see mid to long bonds getting cheaper as the FED starts to lower rates. What am I missing? chang said: I’ve been staying short while the yield curve is inverted. Why? Because 1) I’m getting paid the most by owning the top of the yield curve (6-12 months), and there’s no need to hurry to buy longer durations; 2) if LT yields rise, then prices will fall. I think you’ve got it backwards (or do I?). Fishingrod said: #2 is where I have questions. What if LT yields don't rise when FED lowers rates? Why would LT rates rise when the FED is lowering? I would see the opposite happening. I would see people gravitating towards Longer term bonds with yields that are close to the FED rate, which would be being lowered, locking in a rate for longer. If/when the FED lowers rates, very short bonds will no longer provide that yield, people will go somewhere else for that yield, pushing LT yields even lower and prices higher. If one waits until the yields cross each other, then the LT yield will have a much higher price on it then. That is what makes it an investing call and more difficult, at least for me. One never knows when/what yields and rates will do until after they have done them. And after they have made those moves, the windows of opportunity are already closed, or at least are an expensive trade. Chahta said: You know what I have learned? Buying bond funds at elevated prices is no fun. That is why buying now while prices are low is a smart thing. If the yield is not needed for income now then reinvest at low prices and build income streams for when it is needed with the added benefit of price appreciation down the road. Something I see here and other forums is trying to outsmart the markets. Basic finance says when rates high bonds are cheap. Rates will never stay high forever. Since I start RMDs next year I want my portfolio to do something for me. I don't want me to do something for it My 2 cents - I looked at TLH iShares 10-20 year currently selling for $102. In Feb 2023 it was selling for $109. It paid $3.84 in interest in that timeframe which is 12% more than the same period in 2022-23. If the payments rise another 12% going forward and you bought today your YOC would be 4.2%. If the Fed cuts rates then your payments would not rise. Correct? If the Fed cuts rates how much would you expect the price to go up? |
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Post by racqueteer on Apr 9, 2024 12:36:45 GMT
Good question, mnfish . I remember there being a relationship to duration, but there is also the rate curve shape to be considered, I think (I don't understand this stuff either). I hope someone can explain the thinking or refer to a good source which is understandable! |
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Post by howaya on Apr 9, 2024 13:05:02 GMT
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Post by mnfish on Apr 9, 2024 13:14:22 GMT
From the Fidelity link -
"For example, as of March 28, 2024, 7-year Treasurys are offering a 4.3% current yield. If the Federal Reserve cuts interest rates by 100 basis points in the coming months, you would earn your 4.3% coupon plus capital appreciation of 6%."
How is that 6% cap appreciation calculated?
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Post by liftlock on Apr 9, 2024 15:32:45 GMT
From the Fidelity link - "For example, as of March 28, 2024, 7-year Treasurys are offering a 4.3% current yield. If the Federal Reserve cuts interest rates by 100 basis points in the coming months, you would earn your 4.3% coupon plus capital appreciation of 6%." How is that 6% cap appreciation calculated? Falling interest rates cause bond prices to rise. Rising interest rates cause bond prices to fall. The 6% capital appreciation is the % change in the price of the bond based on the change in the interest rate and the maturity of the bond. The longer the maturity of the bond, the more its price will rise or fall with changes in interest rates. www.investopedia.com/terms/b/bond-valuation.aspwww.pimco.com/en-us/resources/education/everything-you-need-to-know-about-bonds |
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Post by Chahta on Apr 9, 2024 15:41:50 GMT
From the Fidelity link - "For example, as of March 28, 2024, 7-year Treasurys are offering a 4.3% current yield. If the Federal Reserve cuts interest rates by 100 basis points in the coming months, you would earn your 4.3% coupon plus capital appreciation of 6%." How is that 6% cap appreciation calculated? Look up the price of that bond on 3/28/24. If rate goes down 1% to 3.3% then calculate the new price required to yield 3.3%. In other words the new price must increase by 6% to provide a 3.3% yield. The same the reason the 10-year bond was a buy at 5%. Most likely won't see 5% yield again for a long time. |
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Post by howaya on Apr 9, 2024 15:47:37 GMT
From the Fidelity link - "For example, as of March 28, 2024, 7-year Treasurys are offering a 4.3% current yield. If the Federal Reserve cuts interest rates by 100 basis points in the coming months, you would earn your 4.3% coupon plus capital appreciation of 6%." How is that 6% cap appreciation calculated? Isn't the rough calculation in this example: Duration (in years) x 1%(100 basis points) ~ bond appreciation or depreciation ? Thus, a 7 year treasury could gain or lose roughly 7% in value for each percentage point of relative interest change. I guess the 6% quoted above would come from agency costs and other slop like the time it took for the incremental change to occur. |
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Post by anitya on Apr 9, 2024 16:17:55 GMT
I can not find any news why 2-30 yr Treasuries are down 5 basis points. Is this volatility in bond market normal or is there news I missed?
Many PIMCO CEFs with Ex Div tomorrow are down in price today. Usually they stay strong the day before Ex-Div.
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Post by anitya on Apr 9, 2024 18:42:17 GMT
Chahta , Bloomberg speculates the drop in yields today is due to Bullard comments that he expects FED will cut three times this year. I was going to delete my previous post but I see you already quoted it in your reply. If you end up deleting your reply, I will delete this and my previous post or we can leave everything as is.
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Post by Chahta on Apr 10, 2024 8:20:39 GMT
anitya, Atlanta Fed President Bostic said yesterday that he expects 1 cut this year, but it could be 0 or 2. They need to get on the same page.
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Post by mnfish on Apr 10, 2024 11:46:10 GMT
From the Fidelity link - "For example, as of March 28, 2024, 7-year Treasurys are offering a 4.3% current yield. If the Federal Reserve cuts interest rates by 100 basis points in the coming months, you would earn your 4.3% coupon plus capital appreciation of 6%." How is that 6% cap appreciation calculated? Falling interest rates cause bond prices to rise. Rising interest rates cause bond prices to fall. The 6% capital appreciation is the % change in the price of the bond based on the change in the interest rate and the maturity of the bond. The longer the maturity of the bond, the more its price will rise or fall with changes in interest rates. www.investopedia.com/terms/b/bond-valuation.aspwww.pimco.com/en-us/resources/education/everything-you-need-to-know-about-bondsOk, for a single bond I can see why that works. In the case of a bond ETF, like TLH, not so much? |
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Post by fishingrod on Apr 10, 2024 11:59:31 GMT
I, in no way am saying that anybody's way of investing is wrong. I just have wondered when and how people who rightly exited bonds before the fall, will get back into a position with bonds, if they intend to. What will make them pull the trigger. I myself kinda think of bond investing as the opposite of PUP. How do people gauge value in bonds? When does a compelling buy (possible high value) come into play.
I am not saying it is time to buy bonds.
Will people get back into bonds? Or will MM yields keep people enamored.
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Post by fishingrod on Apr 10, 2024 12:02:45 GMT
Ok, for a single bond I can see why that works. In the case of a bond ETF, like TLH, not so much? If one just calculates that for every bond in the fund you will get the possible cap appreciation. |
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Post by racqueteer on Apr 10, 2024 12:22:55 GMT
Ok, for a single bond I can see why that works. In the case of a bond ETF, like TLH, not so much? If one just calculates that for every bond in the fund you will get the possible cap appreciation. I feel like this needs a 'tongue-in-cheek' emoji! |
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Post by fishingrod on Apr 10, 2024 13:06:23 GMT
This thread may be apropos.
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Post by mnfish on Apr 10, 2024 13:25:05 GMT
I did buy some 2yr Treas in my girlfriends accounts in Feb. A 4.25% coupon and est yield of 4.8%.
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Post by Chahta on Apr 10, 2024 13:28:26 GMT
I, in no way am saying that anybody's way of investing is wrong. I just have wondered when and how people who rightly exited bonds before the fall, will get back into a position with bonds, if they intend to. What will make them pull the trigger. I myself kinda think of bond investing as the opposite of PUP. How do people gauge value in bonds? When does a compelling buy (possible high value) come into play. I am not saying it is time to buy bonds. Will people get back into bonds? Or will MM yields keep people enamored. It most likely depends on the investor. As a B&H investor 2022/2023 was the time to buy. Cheap shares were purchased and yield reinvested. Maybe I didn't buy at the bottom but I sure as heck won't be buying after a 10% increase either. I am not using my IRAs (where taxable bond funds reside) until RMDs start. I only have MM funds in my taxable account where I am drawing cash to live on. This current runup where TNX is heading towards 5% (4.5% now) may be another buying opportunity for IT bonds. . 2023 TR: CBLDX 7.63%, RSIIX 9.62%, OSTIX 12.30%, TSIIX 7.61%, DODIX 7.70%, PTIAX 7.48%. Every one better than MM funds. Well above inflation. What am I missing?
More: PTY 23.28% in 2023. 16.67% YTD. |
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Post by steelpony10 on Apr 10, 2024 13:31:44 GMT
To start why wouldn’t most look at bonds just for income and equities for cap gains only? Simply as yield goes up cap gains get smaller and equities do the opposite. Basic concepts. It’s not complicated.
Most believe in retirement one should lean towards less equities. That means an average 15-20 year retirement is regarded as short term, 20+ years is long term. So set your portfolio to your risk limits and forget it until your personal facts change or one can rebalance to those personal limits periodically. I rebalance one portfolio I oversee every April and after the crazy season when a new market starts in November if needed.
With my personal holdings I have few set limits so I barely do anything but auto redirect excess monthly cash to needs. I’ll have no problem doing massive changes if/when my personal facts ever change.
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Post by fishingrod on Apr 10, 2024 13:49:40 GMT
Higher yielding stocks usually don't offer as much capital appreciation potential as growth stocks.
But higher yielding bonds usually offer more capital appreciation potential than lower yielding bonds.
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Post by liftlock on Apr 11, 2024 3:25:55 GMT
Ok, for a single bond I can see why that works. In the case of a bond ETF, like TLH, not so much? If one just calculates that for every bond in the fund you will get the possible cap appreciation. TLH is 10-20 year Treasury bond ETF which has a duration of 13. It's market value is going to be highly sensitive to changes in interest rates because the average weighted maturity of the bonds held by TLH are quite long. A 1% increase in interest rates will cause the value of the bonds held by TLH to decline by approximately 13%. A 1% decline in interest rates will cause the value of the bonds held by TLH to increase by approximately 13%. The duration of a bond or a bond fund can be used to estimate the % change in a bonds valuation for a 1% change in interest rates. A duration of 13 = a 13% change in valuation of a bond / bond fund for a 1% change in interest rates. www.fidelity.com/learning-center/investment-products/fixed-income-bonds/durationwww.investopedia.com/terms/d/duration.aspwww.investopedia.com/terms/m/modifiedduration.asp |
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Post by mnfish on Apr 11, 2024 13:02:01 GMT
In the last 5 days TLH has fallen 2.3% and rates are the same.
That's why I posted earlier - "Ok, for a single bond I can see why that works. In the case of a bond ETF, like TLH, not so much?"
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Post by fishingrod on Apr 11, 2024 13:06:51 GMT
In the last 5 days TLH has fallen 2.3% and rates are the same. That's why I posted earlier - "Ok, for a single bond I can see why that works. In the case of a bond ETF, like TLH, not so much?"What do you mean rates are the same? What rate are you referring to? SEC yld on TLH? Distribution yld? TTM?
The ten and twenty year treasury have moved up considerably in the 5 days.
The price on TLH has fallen so the SEC yld will have risen. But it may only be published monthly.
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Post by mnfish on Apr 11, 2024 13:59:12 GMT
In the last 5 days TLH has fallen 2.3% and rates are the same. That's why I posted earlier - "Ok, for a single bond I can see why that works. In the case of a bond ETF, like TLH, not so much?"What do you mean rates are the same? What rate are you referring to?
The ten and twenty year treasury have moved up considerably in the 5 days.
You're correct. My mistake. I'm just trying to calculate the price/yield correlation again. I guess I was thinking the Fed Funds rate is unchanged. The 20-year yield went up 3.7% (4.579 to 4.749) in the last 5 days and TLH fell 2.3%. On 10/19/23 TLH traded at $93.11 and the 20yr yielded 5.33%. So, as of today, yields fell 10.9% and the price rose 8%. For the simple minded, such as myself, my MM shares are still $1.00 and paying 5%. |
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Post by fishingrod on Apr 11, 2024 15:12:34 GMT
What do you mean rates are the same? What rate are you referring to?
The ten and twenty year treasury have moved up considerably in the 5 days.
You're correct. My mistake. I'm just trying to calculate the price/yield correlation again. I guess I was thinking the Fed Funds rate is unchanged. The 20-year yield went up 3.7% (4.579 to 4.749) in the last 5 days and TLH fell 2.3%. On 10/19/23 TLH traded at $93.11 and the 20yr yielded 5.33%. So, as of today, yields fell 10.9% and the price rose 8%. For the simple minded, such as myself, my MM shares are still $1.00 and paying 5%. For more comparison. Money market paying 5+% is up 2.57% with interest since 10/19/2023. While TLH is up 10.33% total return. |
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Post by mnfish on Apr 11, 2024 15:31:27 GMT
Know anyone that bought it that day?
Edit to add - and still holds it?
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sgra
Lieutenant
Posts: 57
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Post by sgra on Apr 12, 2024 19:07:09 GMT
Jamie Dimon (JPM CEO) quote from a Reuters newsfeed today (my emphasis): "You've got to be prepared for a range of outcomes, which we are," said Jamie Dimon on the analyst call. "All of these questions about interest rates and yield curves... We don't want to guess the outcome. I've never seen anyone actually positively predict a big inflection point in the economy literally in my life or in history."
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Post by yogibearbull on Apr 12, 2024 20:31:00 GMT
Jamie Dimon's annual letter, pg 20, "Therefore, we are prepared for a very broad range of interest rates, from 2% to 8% or even more, with equally wide-ranging economic outcomes — from strong economic growth with moderate inflation (in this case, higher interest rates would result from higher demand for capital) to a recession with inflation; i.e., stagflation. Economically, the worst-case scenario would be stagflation, which would not only come with higher interest rates but also with higher credit losses, lower business volumes and more difficult markets. Under these many different scenarios, our company would continue to perform at least okay. Importantly, being prepared means we can continue to help our clients no matter what the future portends. " www.jpmorganchase.com/content/dam/jpmc/jpmorgan-chase-and-co/investor-relations/documents/ceo-letter-to-shareholders-2023.pdf |
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Post by fishingrod on Apr 18, 2024 11:39:55 GMT
Yields may be going higher once again into the danger zone.
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Post by fishingrod on Apr 18, 2024 11:58:04 GMT
How many people think the Ten year treasury will jump back up to 5%?
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Post by mnfish on Apr 18, 2024 12:49:55 GMT
How many people think the Ten year treasury will jump back up to 5%? With my position in MM funds, I would be more interested in stock prices if that happens. |
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