No love for bonds?
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No love for bonds?
Posted by matthew25 on 2/2 at 12:05 pm
My bond funds lost money in January.

Now I read that UBS is telling their bond investors that they are classified as "aggressive" investors (Fox Business). UBS doesn't want to get sued if the bond market continues to decline.


Can someone explain why bond funds have no future and are now a "risky" investment?

And, are both bonds and stock funds considered "aggressive."



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Posted by Siderophore on 2/2 at 12:21 pm to matthew25
Because interest rates can't stay where they are forever, and when they do, values will drop dramatically.

Especially for long term bonds, which are the main ones seeing the big gains/return right now.



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Posted by ThaBigFella on 2/2 at 12:33 pm to Siderophore
What's a good way to short bonds then is te real question


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Posted by Cold Pizza on 2/2 at 12:37 pm to ThaBigFella
quote:

What's a good way to short bonds then is te real question




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Posted by Fat Bastard on 2/2 at 12:52 pm to matthew25
what types of bonds? corporate? muni's? Treasuries?

I got out of my muni and corporate bond funds quite some time back now.



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Posted by matthew25 on 2/2 at 1:37 pm to Fat Bastard
VWESX, PTCIX and VIPSX lost 2.28, 1.47 and 1.1 so far this year. They are: long-term investment grade, long-term credit institutional and inflation-protected.

VFSTX (short term bond) made only .07. FCISX (multisector bond) made .05.

My munis - FLTMX and VWITX - made .34 and .40. I can live with that.

I am heavy with VIPSX, so it came out a loss for the month.



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Posted by PlanoPrivateer on 2/2 at 1:55 pm to matthew25
I am between a rock and a hard place with bond mutual funds in my 401K. As previously stated, if interest rates go up (and they will) the value of bond funds will go down. The shorter the maturity and the duration the less value they will lose. I’ve thought about moving my bond funds inside my 401k to US Treasuries which is an option I have. Outside of my 401K I have thought about buying actual bonds not bond funds. If you hold bonds to maturity you don’t lose anything and you get your invested amount back. However, you give up diversification and have more risk of default.

I’m trying to pay attention and see what good alternatives there might be.



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Posted by Fat Bastard on 2/2 at 2:40 pm to matthew25
quote:

matthew25



I need to make a correction on my statements above. I no longer have the DOMESTIC bond funds in my Vanguard portfolio that I mentioned above. I, however am still in a GLOBAL bond fund which is doing well in my 401k. All my 401k holdings are overseas. Real Estate, Bonds, and growth stocks. The return on my overseas investments is better than domestically. I have enough domestic allocation in my Vanguard Roth IRA, brokerage account, and individual account.


This post was edited on 2/2 at 2:41 pm

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Posted by Janky on 2/2 at 4:36 pm to Fat Bastard
Tbt


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Posted by tojoe on 2/2 at 6:49 pm to matthew25
Just do like Dave says. Growth mutual funds with a long track record!!!

This post was edited on 2/2 at 6:50 pm

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Posted by matthew25 on 2/2 at 8:10 pm to tojoe
Good point, Dave recommends 4 types of mutual funds, and I don't believe bonds are his cup of tea.


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Posted by Fat Bastard on 2/2 at 8:26 pm to Janky
quote:

Tbt






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Posted by BennyAndTheInkJets on 2/3 at 11:59 am to matthew25
First off, I wouldn't take what UBS says with a lot of salt. Saying bonds are aggressive relative to equities is a pretty misinformed statement.

Every type of investment has it's risks, bonds are no different than equities right now. Rates have risen gradually back up recently, but I expect them to stay somewhat range bound for a while as long as we have easing policies.

You can still make money in bonds. High yield, short-term Spanish and Italian debt, bank loans, mezzanine finanancing, restructuring financing, non-agency mortgages, and several others are still attractive right now and have more room on the downside to go with rates. Even some investment grade bonds have some room for tightening. Also, don't expect rates to rise significantly in short-term space, there is still a big supply/demand mismatch for the next few years.

Treasuries are different, I wouldn't invest in Treasuries at all right now for several reasons. Really no upside outside of a high flight to quality. But to say bonds are "aggressive" and "have no future" is just not correct.



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Posted by BennyAndTheInkJets on 2/3 at 12:02 pm to ThaBigFella
quote:

What's a good way to short bonds then is te real question

Buy CDS, short treasury ETFs, enter into pay-fixed swaps, there are a variety of ways you can do it. You can also do relative value shorts within the capital structure for companies, for example selling senior secured debt and buying unsecured debt.

Long story short, for the avergage investor, just buy TBT.



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Posted by Cold Pizza on 2/3 at 12:52 pm to BennyAndTheInkJets
quote:

...just buy TBT.


Forgive my ignorance, but what's that?



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Posted by BennyAndTheInkJets on 2/3 at 1:01 pm to Cold Pizza
The ProShares UltraShort 20+ Year Treasury ETF. Also I stated this in the ETF thread, but I wouldn't own for over a couple weeks because of ETF decay.


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Posted by Janky on 2/3 at 1:06 pm to Cold Pizza
It shorts treasury bonds.


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Posted by Janky on 2/3 at 1:56 pm to Cold Pizza
(no message)

This post was edited on 2/3 at 1:57 pm

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Posted by matthew25 on 2/5 at 12:27 am to Janky
Benny - you still with PIMCO?


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Posted by Blakely Bimbo on 2/5 at 11:29 am to matthew25
Some people think that they cannot lose money in bonds.

The bond crisis of 1994 was somewhat of a game changer. My husband had a defined benefit plan until the bond crisis. Corporations began the big migration to 401K's after 1994 and if you look at a long term chart of the S&P 500, you will see that the big rise in the markets starting in 1995. I know we were shocked at the amount of his conversion and we had to get very aggressive when we started managing his 401K.

I'm not saying that we are at a 1994 moment. Indeed, the Fed has not started raising rates and we are not at the same rates as 1994. QE is keeping the long end of treasuries down. There are some similarities to conditions in 1994, but there are differences too.

We cannot stay at ZIRP forever. Retirees, Pension funds and insurance companies are being hurt. Notice any price increases in your insurance lately?

I like to watch the movement in HYG.





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