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Post by Deleted on May 12, 2021 18:39:10 GMT
So as interest rates go up, long term bonds, in that case LT treasury prices should go down even more. These have already come down like 30% or so from peak.
ie. EDV/TLT can lose even more?
So what is the thinking behind some people in forum buying these.
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Post by Chahta on May 12, 2021 23:01:15 GMT
Well, I own very little high quality bonds. I do own UST, ST, MS and muni funds. I am coming up on 50% equities and thought it prudent to own some HQ bonds. EDV is down quite a bit and I waited to buy towards the bottom (I hope). Buying low is where I scored with my MS funds. I suppose anything can fall more.....
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Post by retiredat48 on May 12, 2021 23:09:18 GMT
Yes, TLT can go lower....much lower over time.
If ten yr treasury yield goes to 2% or more (NAVs decline), the longer term bond like tlt will follow. Most likely course of action is it will.
Long, long story why, but I have been advocating against holding longer duration bond funds for past couple years. Been exiting for past two years, and last Feb and March got out of several "vanilla-type" bond funds such as BCOIX. I am in largest cash (and short term bond fund) position in lifetime, primarily from these sales.
Learn about bond "convexity" if you are unfamiliar with this. Means as rates go very low...approaching zero, NAV price changes per unit interest rate move, are accentuated. That is happening now...why you see big TLT price declines.
Spending lots of time determining what to do with this cash...but it will likely NOT go back into bond funds, except for leveraged CEFs such as PDI and PCI...and some others.
I consider there will be trades in TLT one can make if they follow bonds closely. I have occasionally done this. But for buy and hold...no thanks. No bond funds for me at these low rates.
R48
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Post by rhythmmethod on May 13, 2021 0:27:38 GMT
I totally agree with retiredat48, based on expectations. I also submit he is a more experienced and skillful investor than I. I however hold some EDV on what is not expected. It's a small enough amount it won't hurt me, but if it pops while other stuff tanks I can take advantage of it. Time will tell...
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Post by fishingrod on May 13, 2021 1:52:57 GMT
It brings back memories of Dickoncapecod. He always used to say that once inflation has happened or the fear of/ is the best time to buy Inflation protected securities on sale. The only insurance that is cheaper after the fact, or injury. I think the same with regular bonds, again ... the timing. One can build a stalwart with any type bonds, it depends on the timing. Fishingrod
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Post by fishingrod on May 13, 2021 2:07:41 GMT
So as interest rates go up, long term bonds, in that case LT treasury prices should go down even more. These have already come down like 30% or so from peak. ie. EDV/TLT can lose even more? So what is the thinking behind some people in forum buying these. I think the thinking is that over time the 'compounding' from mentioned funds may outperform trading in and out of funds, regardless of the direction of interest rates. If one initiates a position and holds for the duration of
said fund one can expect something similar to the SEC yield over the stated duration. One also has established hopefully a negative correlation position to stocks in general, which is what history has taught us and which is
most peoples' intentions and hopes! Dickoncapecod would scold me for such!! Probably Yogibearbull also, and many more.
Regardless, one needs to think long term with bond funds. Bond funds tend to ebb and flow, even more so with volatility and interest rate rises.
And compounding is your friend.
Fishingrod
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Post by fishingrod on May 13, 2021 2:46:05 GMT
It all depends upon when the position is established.
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Post by helmut on May 13, 2021 14:07:53 GMT
So as interest rates go up, long term bonds, in that case LT treasury prices should go down even more. These have already come down like 30% or so from peak. ie. EDV/TLT can lose even more? So what is the thinking behind some people in forum buying these. I've been buying long-term treasuries in one form or another since 2002 with the same warning signs for the last 19 years from other posters about rising interest rates. While LT treasuries have always been volatile very rarely have I seen two bad years in a row. In December 2018 I backed up the truck and loaded up on EDV at about $105 a share. Since then I have sold some EDV three times to meet my allocation goal and bought twice for the same reason. Right now I have a cost of about $113 per share. While there will be years I would like to hide under my desk I will still be collecting a dividend (totally not the reason I hold EDV) and there will always be a financial crisis or black swan event that will put LT treasuries into play regardless of the current interest rates. If inflation does indeed increase I will cut back on LT treasuries and invest in gold & oil, but I can't see myself totally out of LT treasuries. helmut
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Post by chang on May 13, 2021 14:19:41 GMT
I guess I am in R48's camp. And I am grateful to him because he encouraged me to get out of I/T, IG bonds last year. VBILX/BIV was far and away my best performer in 1Q2020, but it started to slide in the 2H. I took a few lumps and got out. Shortly thereafter I sold PIGIX, and moved all FI into VUSFX (Ultrashort) except DODIX and whatever is inside Wellesley VWIAX and Global Wellington VWAGX. So I still have some IG exposure. I am also maintaining my HG fund VWEAX. So yeah I am still spread out, but I definitely reined in the I/T IG stuff.
It was a good move.
I don't see how I could justify buying L/T Treasuries when I don't even want I/T treasuries. Dividends are so ridiculously low, you can't be in these for income. Are you getting paid for the risk?
I guess I am not seeing the "hedge" aspect of it, unless we have a repeat of March 2020. And surely THAT could never happen again....
The only thing I think about now and then are TIPS, but I'm still thinking....
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Post by helmut on May 13, 2021 15:17:55 GMT
chang, I guess I am not seeing the "hedge" aspect of it, unless we have a repeat of March 2020. And surely THAT could never happen again....It happened in a different manner in 2000 through 2002 and 2008. It is not a matter of if, it is a matter of when. There is always a correction in front of us. Meanwhile an annualized 10 year total return of over 9% isn’t that hard to live with. helmut
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Post by Chahta on May 13, 2021 15:24:11 GMT
Devil's advocate: When would it be time to buy treasuries? When the yield gets to 3% or a play/trade starting from a low price per fishingrod and helmut?
I have noticed that most of my mistakes are selling too soon as when a price erodes and not waiting it out (never in equities). If equities had a bad year we would be backing up the truck. Would we be scrambling to buy VTI after a 30% slide? Why not LT treasuries at this level?
I am no investing savant trying to outguess inflation and interest rates. But generally what goes down goes back up.
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Post by helmut on May 13, 2021 17:12:00 GMT
Devil's advocate: When would it be time to buy treasuries? When the yield gets to 3% or a play/trade starting from a low price per fishingrod and helmut? I have noticed that most of my mistakes are selling too soon as when a price erodes and not waiting it out (never in equities). If equities had a bad year we would be backing up the truck. Would we be scrambling to buy VTI after a 30% slide? Why not LT treasuries at this level? I am no investing savant trying to outguess inflation and interest rates. But generally what goes down goes back up. When the price goes down on treasuries the yield goes up so I’m not sure it makes much different whether or not your entry is determined by yield or price. I’m no investing savant either so I use my allocation to determine when to buy or sell. Rebalancing is not necessarily a bad thing. helmut
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Post by steadyeddy on May 14, 2021 0:33:34 GMT
Just like ST bonds, LT bonds have a place in portfolio. The direction/magnitude of interest rate moves is not predictable. Stay the course... I mean stay your course.
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Post by retiredat48 on May 14, 2021 5:27:32 GMT
So as interest rates go up, long term bonds, in that case LT treasury prices should go down even more. These have already come down like 30% or so from peak. ie. EDV/TLT can lose even more? So what is the thinking behind some people in forum buying these. I think the thinking is that over time the 'compounding' from mentioned funds may outperform trading in and out of funds, regardless of the direction of interest rates. If one initiates a position and holds for the duration of
said fund one can expect something similar to the SEC yield over the stated duration. One also has established hopefully a negative correlation position to stocks in general, which is what history has taught us and which is
most peoples' intentions and hopes! Dickoncapecod would scold me for such!! Probably Yogibearbull also, and many more.
Regardless, one needs to think long term with bond funds. Bond funds tend to ebb and flow, even more so with volatility and interest rate rises.
And compounding is your friend.
Fishingrod
Fishingrod, you are accurate here. Bonds held longer term will not lose in "nominal" dollar terms. They lose in real purchasing power, with higher inflation. During the great depression of the thirties, bonds actually did pretty well if held to maturity. Defaults were less than one would think. But they didn't have bond funds back then. The primary problem with a LT bond fund yielding 2%, is that your money, if reinvested, will double every 36 years. Do you think prices will only double in 36 years?? That's not my inflation experience even in the last couple years of supposedly low inflation. Prices continue zooming up. In my investing lifetime prices are up at least 10X. My $30,000 NY home now sells for over $300,000, and will require some work to bring it up to for- sale standards. R48
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Post by retiredat48 on May 14, 2021 5:38:43 GMT
Devil's advocate: When would it be time to buy treasuries? When the yield gets to 3% or a play/trade starting from a low price per fishingrod and helmut? R48 reply in bold: Ah, the $64,000 question. There is no fundamental level. I would rely on technical parameters/charts as to an apparent TLT bottoming, and then Pyramid-Up buy in buckets from there.
The difference is, during the last 33 years bond bull market, with interest rates falling, you had generally RISING NAV bond prices, to trade. Now we are likely entering a period of slowly rising yields, falling NAV prices...a much more difficult trading environment.
I have noticed that most of my mistakes are selling too soon as when a price erodes and not waiting it out (never in equities). If equities had a bad year we would be backing up the truck. Would we be scrambling to buy VTI after a 30% slide? Why not LT treasuries at this level? Stocks are growth instruments; bonds are financial/contractual instruments. Regardless of intervening price points, bonds, excepting defaults, will return an exact amount stated in the bond, at maturity. There is no "growth." Note most bonds/bond funds are now selling way above par. That is, far above redemption values...built in capital losses. You can often find your funds "weighted price, or price-to-par, in M* bond fund info tables.I am no investing savant trying to outguess inflation and interest rates. But generally what goes down goes back up. Not in bonds. What goes up or down, eventually goes to redemption values at maturity. See above...bonds are generally all selling above-par currently.
When I retired early 27 years ago, it was the availability of 30 year 10% bonds to put in the portfolio, that helped enable this. Bond yields thereafter kept falling (rising NAV prices) and never looked back--never returned to those levels of rates. This can happen again in reverse, from a very, very low rate basis---maybe we will never see such low yields again.
R48
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Post by chang on May 14, 2021 11:25:59 GMT
chang, I guess I am not seeing the "hedge" aspect of it, unless we have a repeat of March 2020. And surely THAT could never happen again....It happened in a different manner in 2000 through 2002 and 2008. It is not a matter of if, it is a matter of when. There is always a correction in front of us. Meanwhile an annualized 10 year total return of over 9% isn’t that hard to live with. helmut I would be careful about projecting forward annualized returns from the last decade. I know that history is all we have to go on, but still ....
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Post by Chahta on May 14, 2021 21:13:11 GMT
R48: “Not in bonds. What goes up or down, eventually goes to redemption values at maturity. See above...bonds are generally all selling above-par currently.”
I would generally agree but we are discussing funds. I am not sure they hold a bond for 30 years to maturity. I don’t pretend to know how to run a bond fund but I am pretty sure they don’t simply buy new ones as old ones mature. If that was the case how do they pay CG distributions? EDV paid 5% last year.
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Post by fishingrod on May 14, 2021 22:28:29 GMT
Normally I think most bond funds have a good bit of turnover. Even more so in a year where people are redeeming shares in lump sum. EDV had a good bit of turnover during March 2020 due to redemptions trying to be met.
As it goes. Not normal for bond fund ETF's to be redeeeming en masse, therefore causing capital gains that cannot be offset by capital losses in portfolio. But it may be the new normal as rates rise and volatility in bond funds also.
Fishingrod
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Post by rhythmmethod on May 14, 2021 23:36:58 GMT
R48: “Not in bonds. What goes up or down, eventually goes to redemption values at maturity. See above...bonds are generally all selling above-par currently.” I would generally agree but we are discussing funds. I am not sure they hold a bond for 30 years to maturity. I don’t pretend to know how to run a bond fund but I am pretty sure they don’t simply buy new ones as old ones mature. If that was the case how do they pay CG distributions? EDV paid 5% last year. Chahta , Since you are a relatively new owner of EDV, why don't you keep us posted on how it's doing. I'm guessing you're up about 1.5% in a day or so. Let's see how it plays out over the months, if you don't mind.
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Post by fishingrod on May 15, 2021 1:13:46 GMT
My Repost from another thread...
I have to say that it usually takes me around 1.5 to 2 years to really realize a good bond position. Although in the past, and still, I have had huge gains investing after 2 months of being down 8 to 10% and I am talking intermediate muni funds. One name- Meredith Whitney. I still have capital gains close to 9.47% with plain old VWIUX intermediate term muni fund from constant reinvesting and what I call "on sale "purchasing, from 2013.. and from 2020. At this point I feel if I lose a little in price, I gain a little in yield. If it goes down enough I buy some more. After a while of doing this I am feeling ok. Does this mean I am oblivious to the impending bond doom that shall encompass us all? No, but I wait patiently while I buy bonds and bond funds around 10 to 15% down. Fear is our friend.
I may be wrong and it bites me in the ass, but so far the math has been better than cash, and better than short term funds. Compounding obviously over time helps. But even more, sometimes rebalancing back to your set asset allocation of bonds during really bad bond times can really help to temper the volatility and strengthen the returns of a balanced portfolio.
Fishingrod
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Post by retiredat48 on May 15, 2021 5:39:06 GMT
Normally I think most bond funds have a good bit of turnover. Even more so in a year where people are redeeming shares in lump sum. EDV had a good bit of turnover during March 2020 due to redemptions trying to be met.
As it goes. Not normal for bond fund ETF's to be redeeeming en masse, therefore causing capital gains that cannot be offset by capital losses in portfolio. But it may be the new normal as rates rise and volatility in bond funds also.
Fishingrod
The mutual fund manager does not have to deal with capital gains; the investors do. Most funds are required to pay out each year, like 95% of annual cap gains. If in an IRA, not relevant as no taxes due. The manager could lose a little in assets. If a bond ETF, likely very little in cap gains paid out annually. R48
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Post by Chahta on May 15, 2021 12:07:02 GMT
It appears that EDV holds only zero coupon bonds. Any gains or yield are paid from the sale of those bonds. The average price of the bonds is $54 per M*, which makes sense since zero coupon bonds are priced as a discount to par. I assume that with a duration of 24 years and 17% turnover, 24 year old bonds are being sold, unless there is a possibility of selling others to make a gain.
Am I understanding this correctly?
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Post by chang on May 21, 2021 11:55:40 GMT
Just an observation. While I sold off most IT / LT government bonds last year in the form of BIV / VBILX / FXNAX, I still have (and have added to) LT municipal bonds (VWLUX, VWALX). Munis and Treasuries are obviously different kettles of fish, but there are some commonalities. If I had a dollar to invest in either TLT or VWLUX, I think I'd choose the muni fund.
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Post by Chahta on May 21, 2021 12:32:18 GMT
Is there an ETF equivalent for VWLUX? Looks to have done well as a long term holding. The duration for it is under 6 years which is pretty short compared to TLT and IT muni funds. I don’t believe the two can be compared directly. TLT and VWLUX live in totally different worlds. link
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Post by yogibearbull on May 21, 2021 12:48:46 GMT
Check muni ETFs MUB, TFI, VTEB.
There are also an ETFs of muni CEFs - XMPT, etc.
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Post by Chahta on May 27, 2021 19:48:46 GMT
EDV gave me a very juicy 2 week CG opportunity yesterday. But alas....I did not sell. I hope there is more to come. That is some rollercoaster.
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Post by paulr888 on Jun 14, 2021 2:53:00 GMT
Helmut .... You said it best. Kudos to you for using long bond as long as you have as a strategic holding with rebalancing. I only discovered the long bond this year from Jeffrey Gundlach, Sebastien Page and David Rosenberg as well as videos from Precedence Wealth. I had been preaching about this on Morningstar Forum but gave up. Here is a Consuelo Mack webcast from this week that covers this topic again. wealthtrack.com/why-david-rosenberg-is-convinced-that-the-bullish-consensus-about-the-economy-and-markets-is-wrong/I doubt many people will listen but such is life. Again bravo to you. Would you share what your target % of PV is for the long bond? Mine is 3% to 5% and I am not there yet because I don't like the price. I like the adage there is no such thing as bad bonds, only bad bond prices.
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Post by helmut on Jul 6, 2021 22:35:12 GMT
Helmut .... You said it best. Kudos to you for using long bond as long as you have as a strategic holding with rebalancing. I only discovered the long bond this year from Jeffrey Gundlach, Sebastien Page and David Rosenberg as well as videos from Precedence Wealth. I had been preaching about this on Morningstar Forum but gave up. Here is a Consuelo Mack webcast from this week that covers this topic again. wealthtrack.com/why-david-rosenberg-is-convinced-that-the-bullish-consensus-about-the-economy-and-markets-is-wrong/I doubt many people will listen but such is life. Again bravo to you. Would you share what your target % of PV is for the long bond? Mine is 3% to 5% and I am not there yet because I don't like the price. I like the adage there is no such thing as bad bonds, only bad bond prices. paulr888, Sorry, I've been out of pocket the last couple of weeks and I did not see you post. I know I will get a lot of grief for this but my target allocation for long-term treasuries is 25%. Currently it is at 24% so pretty well on target. Although at the present time my equity position is just a little over 50%, my target equity allocation is 60%. helmut
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Post by rhythmmethod on Jul 6, 2021 23:24:12 GMT
As someone would say, some of us were adding to EDV three months ago. It is up 8% since that time. helmut, Chahta,
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Post by paulr888 on Jul 7, 2021 1:52:37 GMT
Helmut .... Thanks for cycling back and answering my question. You get no grief from me. Your allocation is in line with a pure version of the Permanent Portfolio heralded by Harry Browne. Gundlach suggested that allocation in January but I think he may have trimmed it back over the last few months.
PRPFX evolved from Harry Browne, but while it holds Treasuries I don't think it is the long bond. On June 8, David Rosenberg tweeted:
"Keep an eye on 1.92% on the long bond yield. That's the 200-day moving average and we are closing in on that level. We break that and it's a case of look-out-below!"
My only thought, but who the heck am I to advise you as you were much more on top of this than me, but if I held as much as you, if the long bond dips into a range where I felt the risk/reward was not in my favor, I might considering partial sells and partial rebuying into a rising long bond RATE. But this is market timing. Do you have any thoughts on this strategy? I am thinking about this myself.
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