Bonds!

[randomep]

On 4/20/2022 at 10:28 AM, thepupil said:

Bonds Today: +0.6%

Netflix Today: -34.7%

 

Bonds outperforming Netflix by over 35% today. 

 

you heard it here first fellas. 

 

and what was it 5 years ago?

 

[Spekulatius]

Anyone knows why the ^TYX (30 year treasury) is going parabolic? This is an insane movement since August.

[thepupil]

the long end is just not that liquid. I remember reading in the early days of QE that at one point the Fed ownd like 70-80% of the 20-30 year coupon interest because they prioritized higher coupon legacy bonds. I don't have an updated statistic on this but conceptually I think of long end as having small "float" to use equity metaphor. which is why i think there's talk of ensuring orderly trading through buybacks despite overall stance of tightening. 

 

I think it's awesome...getting high quality long duration at levels like this means long duration bonds are real diversifiers for first time in a while...buy a bond...goes down 5 points, buy some more goes down 5 points...buy some more goes down 5 points...i mean this is glorious.

 

the goldman muni bonds i posted yesterdaya t $105 just traded at $98 and are at 9%+ tax equivalent yield...prepare for more pain and some folks to blow up...don't spend it all at once...

[thepupil]

Just now, thepupil said:

the long end is just not that liquid. I remember reading in the early days of QE that at one point the Fed ownd like 70-80% of the 20-30 year coupon interest because they prioritized higher coupon legacy bonds. I don't have an updated statistic on this but conceptually I think of long end as having small "float" to use equity metaphor. which is why i think there's talk of ensuring orderly trading through buybacks despite overall stance of tightening. 

 

I think it's awesome...getting high quality long duration at levels like this means long duration bonds are real diversifiers for first time in a while...buy a bond...goes down 5 points, buy some more goes down 5 points...buy some more goes down 5 points...i mean this is glorious.

 

the goldman muni bonds i posted yesterdaya t $105 just traded at $98 and are at 9%+ tax equivalent yield...prepare for more pain and some folks to blow up...don't spend it all at once...

 

this is a long winded way of saying, I have no clue why its selling off so much

[Spekulatius]

@thepupil thx, i don't have a clue either. However the fact that "risk free" rates are blowing up means that perhaps they are not considered risk free any more.

 

Perhaps the Quantitative tightening is the reason as you stated. I would agree it is an indication that something somewhere is blowing up. Perhaps we are seeing a repeat of the pension fund disaster in the UK.

Edited October 21, 2022 by Spekulatius

[tede02]

I'm no fixed income pro but it does seem like strange yield moves today. Middle of the curve is down. Long end is up. 

[thepupil]

today, i think some folks are saying that fed is starting to show signs of stlowing tightening which perhaps long end thinks is too early / won't tame inflation...but the move of the last month doesn't fit that narrative. i think it's tough to say  WHY anything is happening....

[thepupil]

i mean i just bought a 1% position in the PM 4 1/4% of 2044 for $66 / 7.4%. in the last 1 year, the spread has gone from 130 to 285 and the rate has gone up a lot, all leading to a fall from $117 ---> $66. there are some PM specific reasons for this and i don't pretend to know what the tobacco market will look like in the future, but even if PM defaulted in 10 years and recovered 50 cents, this would yield a 4.4% IRR. It would break even at a 30 cent recovery. now in no world am i saying PM will default, there's $120 billion of market cap betting it won't, but just illustrating the benefits of the discount. 

 

if in 5 years it trades to a 5.6% yield, you'd make an ~11% IRR. 1 year it'd be like 47% but that's probably a bit aggressive. 

 

I know i'm always early on this stuff and will lose money before make. i could be years early...but the pricing on high quality long duration tsy and credit has drastically improved (from an admittedly insane level)...just nibbling all the way down...like a lamb to slaughter

[Dinar]

3 hours ago, thepupil said:

the long end is just not that liquid. I remember reading in the early days of QE that at one point the Fed ownd like 70-80% of the 20-30 year coupon interest because they prioritized higher coupon legacy bonds. I don't have an updated statistic on this but conceptually I think of long end as having small "float" to use equity metaphor. which is why i think there's talk of ensuring orderly trading through buybacks despite overall stance of tightening. 

 

I think it's awesome...getting high quality long duration at levels like this means long duration bonds are real diversifiers for first time in a while...buy a bond...goes down 5 points, buy some more goes down 5 points...buy some more goes down 5 points...i mean this is glorious.

 

the goldman muni bonds i posted yesterdaya t $105 just traded at $98 and are at 9%+ tax equivalent yield...prepare for more pain and some folks to blow up...don't spend it all at once...

pupil, I can't seem to find your post from yesterday.  Would you mind posting the cusip or another identifier?  Thank you very much

[thepupil]

 

it seems like it actually didn't go down 7 points, it just there wasnt a bid and it got marked at the $98 bid...neverthless, I like em at $104.8 / 4.75% where one can buy $55K of them right now at Fidelity (there's $1.25B of them so I'm sure you can get more paper if you need, but just showing what's actionable with one click for the common man here)

 

 

[RedLion]

pupil are you looking at any short term corporate paper? I'm not sure I'm ready to go for duration exposure yet (other than continuing to buy equities on the way down), but interested in ways to get a bit more yield on short duration. Right now 4.5% 6 months T-bills looks pretty sweet on a risk:reward basis to me. 

[thepupil]

15 minutes ago, RedLion said:

pupil are you looking at any short term corporate paper? I'm not sure I'm ready to go for duration exposure yet (other than continuing to buy equities on the way down), but interested in ways to get a bit more yield on short duration. Right now 4.5% 6 months T-bills looks pretty sweet on a risk:reward basis to me. 

 

I think the best thing in short term is i-bonds and CLO AAA ETF offered by Janus JAAA. 

 

It's floating rate and yields 6.0% ish, japanese banks are no longer buying and UK pensions are forced sellers and are puking CLO AAA out. Its the AAA tranche of securitized leveraged loans. you need a TON of defaults to get hit. it's a liqudiity / complexity spread more than a credit spread. 

 

this is like 1-3 yr floating rate paper yielding 6%...for perspective a year ago more like 1.5% and 3-4% in 2018.

 

I disagree with the general aversion to duration, but if you want a little extra on your short term, i like this (and i-bonds).

 

the JAAA ETF has gone from almost no AUM to $1B+, probably some tinfoil hat tail risks if everyone wanted out at once maybe. 

 

Edited October 21, 2022 by thepupil

[RedLion]

Excellent info, thank you very much. I will definitely check out the Janus CLO fund, this is something I've read about, but never directly invested in myself because I don't know how. Sounds like an ETF might be worth the fees to park some of my short term holdings here. 

 

I'm holding most of this cash waiting for an opportunity in real estate, so the last thing I want to do is stretch for duration and have a big drawdown right when I'm trying to make an investment, I think there's certainly an argument to be adding some duration on the fixed income side at this point now that we are seeing likely OK real returns priced in and maybe some quick gains if you time the FED just right. 

[Spekulatius]

Maybe $STIPS might work as well. it's a 0-5 years duration TIPS ETF.

[UK]

 

[tede02]

I was on a call today with Doubleline's Jeff Sherman. One of the best questions asked was where he was putting his personal money. He said he's been adding to some of Doubleline's ETFs which have light leverage. The "Yield Opportunities Fund" currently yields around 11%. Piqued my interest. I've seen a number of levered bond ETFs that are down 20-50% in 2022. It's pretty crazy. They will turn out some big returns if rates ultimately decline. 

[formthirteen]

1 hour ago, tede02 said:

I was on a call today with Doubleline's Jeff Sherman. One of the best questions asked was where he was putting his personal money. He said he's been adding to some of Doubleline's ETFs which have light leverage. The "Yield Opportunities Fund" currently yields around 11%. Piqued my interest. I've seen a number of levered bond ETFs that are down 20-50% in 2022. It's pretty crazy. They will turn out some big returns if rates ultimately decline. 

 

Thanks. Interesting idea. DLY is trading at a discount to NAV currently:

 

[thepupil]

On 10/21/2022 at 11:36 AM, thepupil said:

i mean i just bought a 1% position in the PM 4 1/4% of 2044 for $66 / 7.4%. in the last 1 year, the spread has gone from 130 to 285 and the rate has gone up a lot, all leading to a fall from $117 ---> $66. there are some PM specific reasons for this and i don't pretend to know what the tobacco market will look like in the future, but even if PM defaulted in 10 years and recovered 50 cents, this would yield a 4.4% IRR. It would break even at a 30 cent recovery. now in no world am i saying PM will default, there's $120 billion of market cap betting it won't, but just illustrating the benefits of the discount. 

 

if in 5 years it trades to a 5.6% yield, you'd make an ~11% IRR. 1 year it'd be like 47% but that's probably a bit aggressive. 

 

I know i'm always early on this stuff and will lose money before make. i could be years early...but the pricing on high quality long duration tsy and credit has drastically improved (from an admittedly insane level)...just nibbling all the way down...like a lamb to slaughter

 

this bond is now at $77 which is +16% in < 1 month and a greater return than the S&P 500's 6.5% over the same time frame. the spread collapsed from 280 to 210 and the 20 yr treasury went from 4.5% to 4.0% yield.

 

Not trying to take a victory lap on an inconsequential position, but just demonstrating that bonds can have upside too. 

[TwoCitiesCapital]

4 hours ago, thepupil said:

 

this bond is now at $77 which is +16% in < 1 month and a greater return than the S&P 500's 6.5% over the same time frame. the spread collapsed from 280 to 210 and the 20 yr treasury went from 4.5% to 4.0% yield.

 

Not trying to take a victory lap on an inconsequential position, but just demonstrating that bonds can have upside too. 

 

I honestly love fixed income for this reason. 

 

I also thought bonds were boring at one point. Then worked at a fixed income house for long duration pension plans that were +/- 40% in any given year and realized there's REAL money to be made in rates/credit. 

 

[tede02]

On 11/16/2022 at 7:08 PM, TwoCitiesCapital said:

 

I honestly love fixed income for this reason. 

 

I also thought bonds were boring at one point. Then worked at a fixed income house for long duration pension plans that were +/- 40% in any given year and realized there's REAL money to be made in rates/credit. 

 

 

When I was in college and getting interested in investing, my dad set up a lunch with someone who had recently retired after being an analyst or portfolio manager for a fixed income fund (mid 2000s). I remember naively asking something like, "why were you on the bond side, it seems so boring." LOL. Over the last 5-years, I've developed a significant interest in fixed income partially via influences from Howard Marks and Jeffrey Gundlach. I've learned so much following Gundlach and his deputy Jeff Sherman closely. I also like some of the top managers at PGIM. One show I've also become a major fan of is "Bloomberg Real Yield" which is posted on Youtube weekly. The show is basically a rotating panel of top fixed income specialists that spend 30 minutes talking about fixed income. I've learned a lot. 

 

Recently, Gundlach has been talking about a strategy of buying some of the credit that has gotten absolutely crushed and hedging it by buying long-treasurys. It's an intriging idea. 

 

Separately, Druckenmiller once said that his biggest returns were made investing in long-treasurys ahead of Fed cutting cycles. That really perked my ears up and I've never forgot it. 

 

 

Edited November 18, 2022 by tede02

[CorpRaider]

I like watching real yield but I have recently chastised myself because I feel like he spends most of the show on prediction porn.

[ValueMaven]

Bank Preferred are very interesting ... ive been buying a bunch recently

[Dinar]

22 minutes ago, ValueMaven said:

Bank Preferred are very interesting ... ive been buying a bunch recently

Which ones?  Thank you.

[ValueMaven]

15 hours ago, Dinar said:

Which ones?  Thank you.

 

Wells Fargo Series Q.  $25 par, 5.8% YTM trading at ~$23 ... bank has issues as we know, but things are improving and costs are coming down.  They just raised the dividend recently as well.  Bank is massively overcapitzed with limited losses and very interest rate sensitive (q/q interest income up 19%) ... if it trades back to $25, you make 16% - you wont get rich off of these, but these are extremely safe IMHO and worth it the yield pick-up when compared to treasuries 

[james22]

On 11/18/2022 at 9:47 AM, tede02 said:

Separately, Druckenmiller once said that his biggest returns were made investing in long-treasurys ahead of Fed cutting cycles. That really perked my ears up and I've never forgot it. 

 

Yep.