Category Archives: Bonds

Bonds during the great rise in US interest rates

There is a severe lack of long term perspective by most financial market participants these days. Interest rates, and in particular the potential for a dramatic rise in future rates, is just the most recent example. Most analyses of rising rates don’t go back far enough to be really useful. Going back to the last rate increase by the FED in 2004 to 2007 is not good enough. Even going back to the 1970s is not good enough. For a better perspective you need to go back further. The best analysis I’ve seen is here. In this post I’ll take … Continue reading

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SWRs from 100% US TIPs portfolio update

Contrary to the overwhelming consensus at the beginning of the year, bonds have done remarkably well year to date. With that in mind I wanted to update the SWRs for the 100% US TIPs retirement portfolio I presented last year. With rates down, SWRs will be down as well but lets see by how much. The updated SWRs from a 100% US TIPs bond ladder are shown below. I also compare them to the SWRs from my previous analysis plus the SWRs from various risky portfolios. As the bottom table shows, the SWRs for a 100% US TIPs bond ladder … Continue reading

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Muni valuation update – still a great value

Its been almost 4 months (June 26 to be precise) since I last posted on municipal bond valuations. I thought this would be a good time to do a quick update on muni valuations. In short, there is still compelling value in municipal bonds for long term investors willing to ride out the fear being priced in to this market. Since my last post, muni prices are about flat. Below is the 6 month chart of the HYMB ETF which represents high yield longer term munis which is where I focused my discussion last time. It currently yields over 5%. … Continue reading

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Higher Safe Withdrawal Rates from a 100% Bond Portfolio?

Is it possible to achieve higher safe withdrawal rates, compared to a stock/bond portfolio, from a 100% bond portfolio? With bond prices at historical highs? That’s what I wanted to find out. I started thinking in this direction after my look at bottoms up retirement planning and calculating what low real rates are actually needed to achieve retirement success. This is mainly because what really kills SWRs in risky portfolios is negative withdrawals early in retirement and inflation as I discussed in my ‘Insist on 1966’ post. So I thought it would be useful to look at what the lowest … Continue reading

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What happened to all the buy & hold bond investors?

What happened to all the buy and hold bond investors? See table below.   The latest long term fund data from ICI shows bond investors are doing what most investors do. Flee an investment at the first signs of distress. Taxable bonds lost about 4% of assets in June and looks like they loose another 3% or so in July. Muni bond funds lost about 5.5% of assets in June and will probably top that in July. These are not the signs of patient long term buy and hold investors practicing asset allocation. Buy and hold is a great investing … Continue reading

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Munis in the bargain bin, again

The recent “taper-tantrum” over the Fed’s potential coming removal of quantitative easing has caused quite some unrest in the bond market. This has caused interest rates, in particular longer term rates (10yrs +) to move substantially higher across the board. Long term munis were no exception and the sell off has left some compelling value in long term munis for long term investors. The chart below takes a long term look (from 1954) at the 20 year muni bond buyer index vs the 20 year US Treasury. Data points are monthly and can be found at the Federal Reserve site. … Continue reading

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Do you know why you own bonds?

Do you know why you own bonds in your portfolio? There are many reasons to own bonds but one of the biggest reasons historically is no longer a good one for many investors. Bonds are often held in portfolios to provide a safe and steady source of income, in particular for retired investors. But the long bull market in bonds is at best in its final innings and thus they no longer meet the goal of providing a safe and steady source of income. Lets take a look at some data and see what it tells us about bonds today. … Continue reading

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Bond bubble? MSFT sells 5 yr bonds at < 1% yield

I’m not one of those bond bubble guys, mainly because I see eerie parallels between the Japanese experience and what the US is currently going through, but there is some crazy stuff going on in bond land. Late last week Microsoft (MSFT) sold 5 yr bonds at a yield of less than 1%, 0.993% to be exact. This set a record for the lowest yielding 5 yr corporate bond offering ever. The first thing I said to myself was ‘whoever is buying these bonds is nuts?’ Lets look at the details and see what simple alternatives an income investor has. … Continue reading

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Pray for higher interest rates

OK. I know. I’m schizophrenic.  In my last post I’m telling you why I think interest rates will stay low longer than people expect. Now, I’m going to explain how rates could go higher and why I’m hoping they do. One of the things that makes investing a challenge is that you’re dealing with the future. As Yogi Bera so eloquently put, “It’s hard to make predictions, especially about the future”. The future, having many possible outcomes, is about dealing with probabilities. Most investors can’t deal with this. We’re emotionally wired with many biases that prevent us from effectively dealing … Continue reading

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A contrarian view on interest rates

How many times a week do you read that interest rates have no where to go but up? That bonds are terrible investments and will be crushed by rising rates? And when was the first time you started to hear these stories? If you read pretty much any source of investment news then you’ve been hearing these stories for almost 4 years now and, at least to me, they seem to be constant. Yesterday the latest one I heard was ‘the bond bubble will pop tomorrow’. Oh dear. Well, today I wanted to provide a counterpoint to all the rising … Continue reading

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