2023 bond musings

I have been a bond oef investor during retirement (last 10 years) but exited this category when interest rates rose and bond oefs tanked. For the past couple of years, I have chosen CDs as a safe haven alternative to bond oefs. Those CDs are now maturing, and I have decisions to make about the cash from these maturing CDs. I am not a trader these days, so will weigh my options closely. As long as Money Market funds continue to pay over 5%, I am comfortable with parking cash there for awhile. Historically Munis work well this time of the year, but I prefer to see what the Feds will do with rates in December, before I make a cash investment decision.

I have owned RPHIX for many years in the past, and it would likely be one of the funds I would add back to my portfolio if I chose to re-enter the bond oef world. 2 other funds I have used extensively in the past, that I would also likely re-purchase would be FPFIX and DHEAX. I am still fond of bank loan funds, and my low risk favorite in that category is PRFRX. All of these funds come from different mutual fund categories, with different levels of risk.

Hey chahta, yes they are very attractive funds!  In my opinion, they are a tad riskier than the other funds I mentioned, and when I am ready to ramp up the risk, they would be on my short list of funds to consider.  CBLDX is one of my favorite funds, and I like its risk profile much better than RSIIX, so I would likely add it before considering RSIIX.

Quote "DT: Please notify me when we have "normal" times again.   I don't remember how to recognize that! "

As you know I have only one choice for my big picture = very high-risk(be out) VS "normal"(in). I explained it at (fd1000.freeforums.net/thread/21/time-market-based-big-picture). The last flip was on 11/2022 where I declared it "normal". "normal" doesn't mean all clear + guarantee to make money. It means a good chance not to lose a lot.

On Nov 1st I posted that the Fed blinked and all clear to buy(or increase) stocks(SPY,QQQ) + bonds(munis should do well), the charts(link1 + link2) can verify it. This is all trader's talk. Anyone can do whatever to meet their goals and style.

Munis continue to go up with 9+% for one month. Yesterday was a telling day. The 5+10 year rates were up = bond funds should be down (examples: DODIX -0.4%, VBTLX(index) -0.3%).
ORNAX (I'm using it as a HY Muni proxy) was up 0.45%.

Here are a group of funds that are attractive to me, as a retired investor who is very risk averse, and not good with frequent trading.

1. RPHIX: A low risk HY bond alternative for more traditional fixed income options. 1 yr TR 5.64, SD .84
2. FPFIX: A relatively low risk NonTraditional alternative for more traditional fixed income options. 1 yr TR 7.13, SD 2.06
3. DHEAX: A relatively low risk Short Term Bond alterntive for more traditional fixed income options. 1 yr TR 7.57, SD 2.08
4. CBLDX: A relatively low risk multisector bond oef, that like for TR. 1 yr TR 6.92, SD 1.9
5. VCFIX: Below Average risk multisector bond oef, that I like for TR. 1 yr TR 7.92, SD 3.1
6. RCTIX: Below Average risk multisector bond oef, that I like for TR. 1 yr TR 7.73, SD 3.66
7. RSIIX: A relative low risk HY bond oef, that I like as an equity alternative. 1 yr TR 7.87, SD 3.25
8. PRFRX: Below Average risk BL bond oef, that I prefer in a flat/rising interest rate market. 1 yr TR 10.92 SD 3.74
9. MWFLX: Lower risk BL bond oef, that I prefer in a flat/rising interest rate market. 1 yr TR 10.98, SD 3.57

Notes: I have historically incorporated HY Muni funds in my Taxable accounts, but not for last couple years. Hopefully, they will be more attractive to me in the near future. Until CDs fall below 5% rates, I will continue to hold them as a predictable and no risk component of my portfolio. Finally, I am not recommending these funds, but they fit MY CRITERIA I have set for my portfolio. 

I posted about it already on another site because Junkster did, so let's go and do it here.
For several months now I have owned CBYYX, except sometime in Nov 2023.
CBYYX is a special fund investing in CAT(catastrophic) bonds. You can find generic info about these bonds at www.artemis.bm/. On that site, you can also find an explanation of most of the holdings in CBYYX. Example: Stabilitas is CBYYX biggest holding see this= www.artemis.bm/deal-directory/stabilitas-re-ltd-series-2023-1/ You can buy it at Schwab with no fees.

CAT funds have not performed well in the past but are doing great YTD. See the chart below. The chart/performance is amazing in 2023(inception in 01/2023). It lost a couple of times just one cent. This fund has a very low AUM. So, here we go again. As long as I can find 1-2 funds out of thousands, that is where I invest. This fund has a very low AUM. The fund didn't pay me any monthly distributions.

Why is it doing great? Will the future look as good? Will I keep holding? No idea.

FD: "I posted about it already on another site because Junkster did, so let's go and do it here. For several months now I have owned CBYYX, except sometime in Nov 2023. CBYYX is a special fund investing in CAT(catastrophic) bonds. You can find generic info about these bonds at www.artemis.bm/. On that site, you can also find an explanation of most of the holdings in CBYYX. Example: Stabilitas is CBYYX biggest holding see this= www.artemis.bm/deal-directory/stabilitas-re-ltd-series-2023-1/ You can buy it at Schwab with no fees. CAT funds have not performed well in the past but are doing great YTD. See the chart below. The chart/performance is amazing in 2023(inception in 01/2023). It lost a couple of times just one cent. This fund has a very low AUM. So, here we go again. As long as I can find 1-2 funds out of thousands, that is where I invest. This fund has a very low AUM. The fund didn't pay me any monthly distributions. Why is it doing great? Will the future look as good? Will I keep holding? No idea."

Just a few general reactions I have after reading the last couple of posts on the aforementioned subject:
1. I find the posts and discussion about CAT bonds and CYBXX interesting, even educational. I had never heard of CAT bonds, or CBYXX.
2. It seems of particular interest to "traders", as evidenced by references and comments from Junkster and FD. I have no idea how many traders are on this forum or the other referenced site (Mutual Fund Observer) where I also am a member. I have no idea how many posters on this and the other forum actually are, or plan to, putting their money to work in this category, or in this bond oef.
3. For me personally, I have no intentions of investing in this category, or CBYYX fund--does not fit my investing style or portfolio objectives.
4. I personally attempt to understand mutual funds I invest in, look into details as much as I can, and prefer to understand more about how and why a fund performs in a particular way. The statement, "Why is it doing great? Will the future look as good? Will I keep holding? No idea" is pretty foreign to my decisions about whether a fund is a wise place for me to put my retirement nest egg money. However, that is just me, based on my investing style, and nothing else.

I have read what the Administrator (FD) of this forum is doing on this subject, but would be interested the thoughts of other Members of this forum about this subject.

FD said: "What will happen when rates go to 3% with inflation around 3%...and they will...MM/CD can't support most. Typical bond funds will do 4+% with volatility over 1-2% sometimes. You must own stocks.

What will happen to CBYYX? no way to know, below is a LT performance.

Who may invest in these special funds? someone like Junkster, Sortatino, maybe Fred."



Afraid not, FD.

In terms of bond funds, I might be looking at CBLDX and RCTIX if rates go down to 3%.

And, in a 3% interest rate environment, I will again own stocks in conservative balanced and hedged funds. Examples of funds that are on my watchlist and that I have owned previously are: PVCMX, JHQAX and FMSDX. I am also following closely two new promising TR Price funds: PRCFX (Giroux) and PHEFX.

In the meantime, I have CD's that won't mature until August of next year @ 5.3%, and TFLO, a floating rate Treasury fund (state and local tax free) @ 5.34%. So far, so good.

Fred

Investing in TLT(can't find THT) is rather "simple". You tell me where the rates will be, I can tell you how much you will make. Treasuries have the highest correlation to rates, I just can't predict rates and from my experience, even the experts can't do it accurately.
Yes, rates will go down eventually, when and how fast is the question? The Fed controls the ST rate, the market the LT.
The Fed was not as hawkish, and why the 10-year (I'm using this instead of the 30 year) rate went down about 0.8%. 0.8% should be about 16% for TLT. The chart shows about 14-15%.
From here, the discussion can be about style and trading, at least for me.
1) Are you going to hold 1,2,3 years?
2) Is this a trade?
3) What % do you have in it? Most don't want to post how big is their investment but IMO it's very important. There is s big difference between 2-3-5% to 10-20%.
So, TLT made about 14-15% from the bottom, ORNAX(a proxy for HY Munis) made "only" about 10% but I would prefer to hold ORNAX and invest double the amount (in my case a lot more than double) with lower SD/Risk and correlation to rates. Chart (schrts.co/jzTkEixx).
The following is just a guess. $TNX is getting close to its 200 days MA + rates went down so fast + the Fed will cut rates slowly unless the economy breaks + tomorrow we will have the job report and maybe rates will retrace some of it. Again, it's all guesstimation. I prefer the bird in the hand when I make money. This is why I sold my HY Munis.

Edit/Add: the market opened with rates up. TLT is down -0.7%...HYD(HY Munis) is up 0.1%...a good example of correlation.

Today is a telling day for bonds.

I owned another bond fund with a small AUM. The nice thing about it is the fact I can contact the team and discuss what they are doing and what they think about the current markets. They also email me very often market commentary. See an example below from several days ago. It is contradictory to many other analysts who think that rates are going down. The manager's explanations in the last several months were spot on.

Quote: The Federal Reserve has struck a much more conciliatory tone in recent weeks, and the markets have responded. Yields are down anywhere from 50 to 80 bps from their October highs depending on what tenor of the yield curve one references. The Chart-of-the-Week plots market expectations for the Fed Funds Rate in December 2024 and December 2025 using the applicable Fed Funds Futures contract. As of Friday, the market expects the Fed Funds rate to be 4.16% by the end of next year, and 3.5% by the end of 2025. This implies that the Fed will cut over 120 bps next year and an additional 75 bps in 2025.

Much will depend on incoming inflation data as well as the strength of employment releases and the consumer. We have been inundated with the thesis that excess savings from the pandemic have been depleted, however, I currently see no evidence of that and even Jay Powell noted how resilient the consumer has been. Inflation, (although short of their 2% target) has continued to fall perhaps giving the Fed more reason to halt their hiking schedule. We are skeptical that the Fed will cut rates 4 times next year. We do believe that any weakness in employment could catalyze a gradual easing to a more neutral rate but suspect that would be just beginning in the back half of next year.

Our base case is that the Fed will cut 50 bps in 2024. If inflation reaccelerates, which is entirely possible, the November plunge in yields could quickly be reversed, much like it was just after the regional banking crisis in March. Our strategy will remain the same as the macro-economic picture remains nebulous. We will allow price to dictate relative value within the fixed-income markets and continue to assess economic data as it is released. We don’t profess to know what is going to happen moving forward, but currently, the consumer and employment are strong, inflation remains elevated, and the government continues to overspend. Claims that these trends are on the cusp of reversing are mere speculation. If and when they do, we will aim to take advantage.

As I said before, I don't like trades such as TLT (or other treasuries) with high correlation to rates and high volatility. Suppose you owned HY LT Munis, if you decided to sell today, they were flat. TLT was down in 2 days 1.5%. See the chart below since early Nov and how many times TLT has been down 1-2%.
There is no question that if you can predict rates and they continue in that way very quickly, you will make more. I also don't trade ETFs because the traders can increase the volatility even more ST.
Why do I keep mentioning HY Munis, this category has worked very well for me. Munis are not as safe as treasuries, but still "safe" and HY Munis funds have both IG + junk munis. I found out years ago that HY Munis move pretty quickly, but don't react to rates as much = they have better risk/reward, and they let you sell a bit longer without losing as much. I don't try to explain too much why, I just noticed it. Sure, I know Munis are being used by high earners. HY Munis have different risk/SD too. Example: NVHAX is a ST duration HY Munis.
While Schwab lets you buy Munis in an IRA, Fidelity doesn't.

The above is just a trader's opinion.