Post by Admin on Dec 14, 2021 19:51:04 GMT -5
Myth1: How many times have you heard the above? Hundreds of time, but reality can be different.
1) Not all bonds are treasuries, which are highly correlated to rates.
2) If you are sure rates are rising, then Bank Loans bonds usually do better. Their shorter term duration, about 3 months, is why their prices get adjusted faster and many times they make money.
3) Munis and especially high-yield Munis can do pretty well too.
4) High yield Corp bonds are more correlated to stocks
5) The pace of increase is also a factor. A very sharp increase is much worse than a slower one where bonds can't adjust.
Myth2: buy shorter term duration bonds instead of longer term if rates are rising.
1) The Fed controls ST rates (The federal funds rate is the interest rate at which depository institutions trade federal funds (balances held at Federal Reserve Banks) with each other overnight). The markets control longer-term rates, such as the 10-year treasury. Typically, LT rates follow the ST.
2) Again, not all bonds are treasuries.
So, let's see what happened in 2021, (as of 12/13/2021). The 24/7 media look at the 10 year treasury. It went up from 0.9+% to 1.4+%
1) Treasuries lost money as expected. VBTLX(US total bond index) lost -1.5%. VFITX (Vangurd inter treasuries) lost -2.2%
2) Different M* categories in 2021...Bank loans made 5.1%...HY Corp made 4.2%...ST Munis made 0.2%...Inter duration Munis made 1.6...HY Munis made 5.3%
Did you pay attention that
1) Three categories made money. 2 categories made over 5%. I own several bond funds that made over 12% YTD.
2) longer duration Munis made more money than short-term Munis.
Myth3: rates are going up soon. I have heard that hundreds of times, while it's difficult to guess how fast and how far rates will go. Gundlach, the king (without cloths) of bonds, predicted in 2015 that the 10 year treasury to be 6% by 2021, and again in 2018(link). In 12-14-2021 it's under 1.5%.
1) Not all bonds are treasuries, which are highly correlated to rates.
2) If you are sure rates are rising, then Bank Loans bonds usually do better. Their shorter term duration, about 3 months, is why their prices get adjusted faster and many times they make money.
3) Munis and especially high-yield Munis can do pretty well too.
4) High yield Corp bonds are more correlated to stocks
5) The pace of increase is also a factor. A very sharp increase is much worse than a slower one where bonds can't adjust.
Myth2: buy shorter term duration bonds instead of longer term if rates are rising.
1) The Fed controls ST rates (The federal funds rate is the interest rate at which depository institutions trade federal funds (balances held at Federal Reserve Banks) with each other overnight). The markets control longer-term rates, such as the 10-year treasury. Typically, LT rates follow the ST.
2) Again, not all bonds are treasuries.
So, let's see what happened in 2021, (as of 12/13/2021). The 24/7 media look at the 10 year treasury. It went up from 0.9+% to 1.4+%
1) Treasuries lost money as expected. VBTLX(US total bond index) lost -1.5%. VFITX (Vangurd inter treasuries) lost -2.2%
2) Different M* categories in 2021...Bank loans made 5.1%...HY Corp made 4.2%...ST Munis made 0.2%...Inter duration Munis made 1.6...HY Munis made 5.3%
Did you pay attention that
1) Three categories made money. 2 categories made over 5%. I own several bond funds that made over 12% YTD.
2) longer duration Munis made more money than short-term Munis.
Myth3: rates are going up soon. I have heard that hundreds of times, while it's difficult to guess how fast and how far rates will go. Gundlach, the king (without cloths) of bonds, predicted in 2015 that the 10 year treasury to be 6% by 2021, and again in 2018(link). In 12-14-2021 it's under 1.5%.