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Started By
Message
re: Kessler in WSJ: Watch out when interest rates rise.
Posted on 5/1/13 at 9:01 am to BennyAndTheInkJets
Posted on 5/1/13 at 9:01 am to BennyAndTheInkJets
quote:
I personally believe that we are in a much better spot than we would've been wihtout ZIRP/QE, which is where our disagreement lies.
If you mean without ZIRP/QE for 2012 & 2013, then yeah, but let's not forget that I was a supporter of all this stuff until well into 2011, and I still defend that position as appropriate for that time frame.
quote:
Can you honestly say you've done the best for the country by saying "frick it" and hitting the reset button or trying to do something that has never been done to the level before and you have no precedent to if it will work. He picked the stereotypical American response, saying frick it and seeing what happens.
Yeah, but it goes both ways. I really don't think it's possible to hit a reset button at this point. The potentially disastrous asset deflation spiral has been decisively prevented, in my opinion, and it's time to move on to combating other problems.
quote:
Honestly, the only way to figure out which line of thinking is correct is to grab some popcorn and watch what happens for the next 3-5 years.
Well put!
1
Posted on 5/1/13 at 9:18 am to Doc Fenton
By the way, there was this awesome photo of Bernanke (from a March 20 press conference) in a current Bloomberg article that I just couldn't pass up posting:
Recent criticisms aside, damn, that man is suave.
Recent criticisms aside, damn, that man is suave.
Posted on 5/1/13 at 9:53 am to Doc Fenton
Thanks Doc. This thread rules.
Ok, I've been drinking too much coffee and that makes this topic get fuzzier than usual, but here goes. When the Fed finally decides to increase interest rates, after such a long period of ZIRP/QE, would that not change the modified duration and thus lower prices of existing issues / fund shares? Yield would go up but not for issues already owned by the funds in comparison to newly-issued instruments. This would drop the share price of bond mutual funds considerably. Especially longer duration bonds.
I know TIPS basically insure against unexpected increases in inflation, but what I'm thinking is that many investors would see a TIPS fund as a safe haven. Especially if they're risk adverse and don't want to go into Value or EM funds. I'm not and own both but most fixed income holders would not be comfortable in these issues, especially in an environment of new interest rate change.
So that's what I've been thinking. A jump in TIPS share price not on investors following fundamentals (as usual) but on panic instinct.
Ok, I've been drinking too much coffee and that makes this topic get fuzzier than usual, but here goes. When the Fed finally decides to increase interest rates, after such a long period of ZIRP/QE, would that not change the modified duration and thus lower prices of existing issues / fund shares? Yield would go up but not for issues already owned by the funds in comparison to newly-issued instruments. This would drop the share price of bond mutual funds considerably. Especially longer duration bonds.
I know TIPS basically insure against unexpected increases in inflation, but what I'm thinking is that many investors would see a TIPS fund as a safe haven. Especially if they're risk adverse and don't want to go into Value or EM funds. I'm not and own both but most fixed income holders would not be comfortable in these issues, especially in an environment of new interest rate change.
So that's what I've been thinking. A jump in TIPS share price not on investors following fundamentals (as usual) but on panic instinct.
Posted on 5/1/13 at 10:06 am to Coeur du Tigre
quote:
When the Fed finally decides to increase interest rates, after such a long period of ZIRP/QE, would that not change the modified duration and thus lower prices of existing issues / fund shares?
Yes.
quote:
Yield would go up but not for issues already owned by the funds in comparison to newly-issued instruments. This would drop the share price of bond mutual funds considerably. Especially longer duration bonds.
Yes. But they picked up extra income during the time rates were low comapred to shorter duration so outside of a huge shock they don't care as much. Just adjust duration down as much as you can given your guidelines.
quote:
I know TIPS basically insure against unexpected increases in inflation, but what I'm thinking is that many investors would see a TIPS fund as a safe haven.
This is the problem with viewing TIPS as a safe haven. In '08 TIPS traded like duration for a while then started trading like credit when things got bad. The thought is that credit and TIPS are correlated based on the presumption that inflation is bullish for TIPS directly and corporates indirectly through revenue growth, while deflationary episodes hurt both in the same manner. I also have my own reservations in regards to CPI-U calculations due to subsitutions and hedonics regressions.
All in all, I would be cautious with viewing TIPS as a "safe haven".
Posted on 5/1/13 at 10:19 am to BennyAndTheInkJets
Thanks Benny. The financial writings on TIPS and how they behave contrary to assumption make for a large tar baby. All interesting but you can never see an end to it.
Possibly the better option would be to follow fundamentals and switch into bond funds of short duration until the markets calm down and the intermediate bonds regain their (slightly) better yield.
Possibly the better option would be to follow fundamentals and switch into bond funds of short duration until the markets calm down and the intermediate bonds regain their (slightly) better yield.
Posted on 5/2/13 at 11:35 am to Coeur du Tigre
quote:
Possibly the better option would be to follow fundamentals and switch into bond funds of short duration until the markets calm down and the intermediate bonds regain their (slightly) better yield.
Just really wanted to bump this because its the best thread MT has had in a while.
The thing about the intermediate portion of the yield curve that can compensate you even given the low yields, is it's steepness. The "rolldown" you'll pick up by buying a 10-year bond at say the 10-year portion and holding it for 1 year. You only pick up 1.63% of yield at current levels, but assuming no changed in rates (
I know but the concept still holds true) you'll pick up ~19 basis points of price appreciation by letting it "roll down" to the 9-year part of the curve. All these figures are based on the active Treasury curve.
This post was edited on 5/2/13 at 11:37 am
Posted on 5/2/13 at 11:38 am to Doc Fenton
quote:
Recent criticisms aside, damn, that man is suave.
You ain't lying, bro.
Posted on 5/2/13 at 11:54 am to BennyAndTheInkJets
Dillon, South Carolina's favorite son and a slam dunk future Nobel Prize winner.
In many ways the history of this country is a history of finding great leaders when they are needed most.
In many ways the history of this country is a history of finding great leaders when they are needed most.
Posted on 5/2/13 at 12:08 pm to BennyAndTheInkJets
quote:
The thing about the intermediate portion of the yield curve that can compensate you even given the low yields, is it's steepness. The "rolldown" you'll pick up by buying a 10-year bond at say the 10-year portion and holding it for 1 year. You only pick up 1.63% of yield at current levels, but assuming no changed in rates ( I know but the concept still holds true) you'll pick up ~19 basis points of price appreciation by letting it "roll down" to the 9-year part of the curve.
I can see I'm going to have another Frank Fabozzi weekend... I love this stuff but it never sinks in. I shall return.
Posted on 5/3/13 at 8:54 am to prplhze2000
quote:
Watch out when interest rates rise.
is this news to you?
Posted on 5/3/13 at 9:10 am to mostbesttigerfanever
10-year at OP (2/28) - 1.88%
10-year right now - 1.72%
10-year right now - 1.72%
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