Bonds? James Bond?

[Tangler]

Lordosis style poll. (I know it is a bad poll......I just want to learn about bonds, sorry)

Where are your bonds? What are you doing with this portion of you AA? What duration? TIPS? I-bonds?

Has the interest rate environment altered you bond investment strategy? How?

More than one choice is available, and discussion encouraged.

So the question is: Where are your bonds?

[Zaphod]

No bonds. If anything I've been shorting bonds.

Though they may become attractive soon.

[Dont_know_mind]

No bonds. If anything I've been shorting bonds.

Though they may become attractive soon.

Bonds have moved a long way in the last 3 months. I don't own any here, but they're a lot more attractive now.

I was wondering today, whether bond yields might have seen the peak for the next 2 years. People are hysterical about inflation and talking about the Fed doing 75 or 100bps, and runaway inflation. But nothing has really changed since 3 months ago! I think things have gone from one extreme to the other for interest rate expectations.

One thing I wonder about is the calls for EPS reductions. I tend to think it would be a major feat for nominal earnings to be revised down, because of higher actual inflation. I guess it's possible.

I am really tempted to increase risk exposure before the fed meeting, because sentiment is so negative, but will sit it out.
Take holiday I think from any activity or tinkering.
I am pretty happy with my exposures; they are planned and manageable with my lifestyle.
I should not succumb to temptation from market action. But it's really tempting!

In terms of Tangler's query, TIPS now have a positive yield now. If the yield on 10 year TIPS was +3%, I would own some!

[Dewangski1]

No bonds of any kind for me. I’m in accumulation and 15 years away from RE.

Edit: However, I am about 7% cash with some CD and HYS holdings.

[Zaphod]

Bonds have moved a long way in the last 3 months. I don't own any here, but they're a lot more attractive now.

I was wondering today, whether bond yields might have seen the peak for the next 2 years. People are hysterical about inflation and talking about the Fed doing 75 or 100bps, and runaway inflation. But nothing has really changed since 3 months ago! I think things have gone from one extreme to the other for interest rate expectations.

One thing I wonder about is the calls for EPS reductions. I tend to think it would be a major feat for nominal earnings to be revised down, because of higher actual inflation. I guess it's possible.

I am really tempted to increase risk exposure before the fed meeting, because sentiment is so negative, but will sit it out.
Take holiday I think from any activity or tinkering.
I am pretty happy with my exposures; they are planned and manageable with my lifestyle.
I should not succumb to temptation from market action. But it's really tempting!

In terms of Tangler's query, TIPS now have a positive yield now. If the yield on 10 year TIPS was +3%, I would own some!

There is still a historical and massive spread between CPI and fed funds rate, like truly mind boggingly large. There arent many n instances but inflation has never been at these levels and gone down without FFR getting above it, and also never without a recession. We are actually at 70s+ levels of inflation if you used the same CPI accounting metrics, ie, housing without OER and without such a massive lag.

Longer tenors probably wont go up massively relative to last years moves but still some to go, but shorter terms could increase further, ie, inversion.

[Tangler]

Christine Benz (morning star) thinks individual short term bonds held to maturity make sense now.

I am still leaning but i am likely going to buy a series of individual bonds & CDs to ladder to avoid SORR in taxable

https://podcasts.apple.com/us/podcast/investing-insights/id278128007?i=1000565979543

[Zaphod]

Christine Benz (morning star) thinks individual short term bonds held to maturity make sense now.

I am still leaning but i am likely going to buy a series of individual bonds & CDs to ladder to avoid SORR in taxable


https://podcasts.apple.com/us/podcas...=1000565979543

Yeah they arent going to like crush you even if they double right? Thats the beauty of low duration.

[Dont_know_mind]

There is still a historical and massive spread between CPI and fed funds rate, like truly mind boggingly large. There arent many n instances but inflation has never been at these levels and gone down without FFR getting above it, and also never without a recession. We are actually at 70s+ levels of inflation if you used the same CPI accounting metrics, ie, housing without OER and without such a massive lag.

Longer tenors probably wont go up massively relative to last years moves but still some to go, but shorter terms could increase further, ie, inversion.

In my mind, there were 2 periods comparable to the current one : WW1 and the Korean war (1950-51).
In WW2 and the 5 years after, there was incredible financial repression (in 1946 real yields were -16%), so I don't think that is comparable.

The current period is not to me clearly analogous to the 1970's.

The equivalent of the 30 year yield (consul bond) went from 2% per cent in November 1915 to 5% per cent in August 1918.

My understanding is the US inflation rate was:
1914: 1%
1915: 5%
1916: 7.92%
1917 : 17.43%
1918: 17.97%
1919 : 14.57%
1920: 16.30%
1921 : -10.50%
1922 : -6.15%
1923 : 1.79%
1924 : 0.00%
1925 : 2.34%

I think this is where I differ from the consensus. I don't think that the current situation is similar to the 1970's, because of the Ukraine war.
The threat is not so existential that the Fed has to enact the sort of financial repression that occurred in WW2, but to me it is crazy to think that they would ignore it.
I find it hard to imagine them getting ahead of the curve and risking a recession, before there is a likely resolution to the Ukraine war.

Inflation is not likely to be as much as during WW1 (unless the war really escalates). It seems comparable to the Korean war (6-8% pa inflation compared to pre-war).

Spending maybe about as much as for the Korea war (my estimate total 500B spend in today's dollars) for the US- during that inflation went from -2%, 1949 to 6% in 1950-1951 during the war.

I don't think there has been a period since 1910 that the US has been involved in a war (ww1, ww2, Korea, Vietnam, Iraq), when there has been a recession during the war. The war spending is a significant stimulus and there has usually been significant financial repression (negative real yields).

Often, there was a recession after the war ended (1921-ww2, Korea, Vietnam).

I can't really understand how people can ignore the war in their analysis of expected Fed reaction function.

Maybe the Ukraine war will fizzle out and turn out not to be a war the US is actually involved in, I guess it's still evolving.

[Dont_know_mind]

Christine Benz (morning star) thinks individual short term bonds held to maturity make sense now.

I am still leaning but i am likely going to buy a series of individual bonds & CDs to ladder to avoid SORR in taxable


https://podcasts.apple.com/us/podcas...=1000565979543

It may not matter that much what you buy now, particularly if short duration.

The main thing is that any long duration bond (10-30 years) bought in the 5 years before a major war has turned out to be a bad investment due to spike in yields during the war.

But no one can know beforehand when a major war will occur though.

[Zaphod]

Think there are never perfect analogues, but after ww2 while not perfect is kind of decent.

Real issue is we have an asset bubble near 2000 levels combined with coming off of zero rates/inflation. Just bad juju.

There are ofc similarities to the 70s, which were precipitated by not taking the 60s inflation seriously. This is where I disagree with "not 70s", its more not yet, and depends on what we do.

For ww2/70s i meant that energy crisis was obvious and near miss right after, and instead of solidifying it for the future they thought dodged bullet nbd, and the next years suffered massively. Both eras had brushes with disaster that were ignored and then hit with reality. Kinda (exactly) like what is happening now.

The 70s didnt happen overnight, started in 60s and ended in 80s.

[Tangler]

Yeah they arent going to like crush you even if they double right? Thats the beauty of low duration.

My current situation is I-bonds + short duration

[AR]

No bonds. If anything I've been shorting bonds.

Though they may become attractive soon.

Why no I-bonds?

[Tangler]

I-bonds are great now but hard to load up on. I have a total of 70k yielding around 7-9%

I used a LP, and two LLCs + my wife and my SS # to get as much as possible but many people are limited to 10-20k per year.

[Zaphod]

Why no I-bonds?

Too small to matter and easier money elsewhere. Shorting bonds has been killing it. Much simpler more obvious trade.

[AR]

Too small to matter and easier money elsewhere. Shorting bonds has been killing it. Much simpler more obvious trade.

That seems reasonable. Shorting bonds is not really in my skillset at the moment. Probably should check it out.