Bonds!

[Gamecock-YT]

I've got the equivalent of shoe shine boys talking me up about I-Bonds fwiw.

[thepupil]

On 5/13/2022 at 5:26 PM, CorpRaider said:

What do you think of this statement?  "As a retail peon, I should buy no fixed income until I have exhausted my annual limit each year of both series I and series ee savings bonds."  A 3.5% nominal with a 20 year term, tax deferred and exempt from state taxes, is still pretty good, no?

I wouldn’t buy EE’s when the 20 yr zero coupon tsy yields about the same and Is liquid or you can buy 20yr IG bonds for 5%+…but I wouldn’t buy EE’s generally, the payoff profile is just too bizarre, make no money for 19 years then double in year 2…it means you truly must hold for 20 years to reap the above mkt yield…

[crs223]

7 hours ago, Gamecock-YT said:

I've got the equivalent of shoe shine boys talking me up about I-Bonds fwiw.

I love this comment for two reasons.  First anecdotes like this saved me from the 2006 housing bubble and resulting GFC.  Second, because i am one of those shoe shine boys.

 

Please tell me if im being dense or drinking too much kool aid… but ibonds are the biggest no-brainer I’ve ever seen…

 

if I could buy an unlimited amount, I would take $1M of equity out of my house and back up the truck.  Then sell and pay off the loan when the “ibond bubble” pops.

 

What’s the deal with these ibonds anyways?  Why does the USG subsidize savings for the rich*?
 

* rich: more than $10k in savings

 

 

 

 

 

 

[CorpRaider]

9 hours ago, Gamecock-YT said:

I've got the equivalent of shoe shine boys talking me up about I-Bonds fwiw.

No way a shoe shine boy could navigate treasury direct.  haha

 

Yeah thanks pupil, I started thinking about this that's its a zero coupon offering and not so great in that context.  Maybe wait for the coupons to catch up to the market.  Ulysses contract: if yields get to 7% again I'm going to lay the wood to these like my dad should have done in the 80's.

Edited May 15, 2022 by CorpRaider

[Gamecock-YT]

11 hours ago, CorpRaider said:

No way a shoe shine boy could navigate treasury direct.  haha

 

Yeah thanks pupil, I started thinking about this that's its a zero coupon offering and not so great in that context.  Maybe wait for the coupons to catch up to the market.  Ulysses contract: if yields get to 7% again I'm going to lay the wood to these like my dad should have done in the 80's.

 

Ha that's true. My 90 year old grandparents just sold the house they had been living in for 60 years and were trying to figure out what to do with the money, somehow it came up that i-bonds would make a good investment and they asked me what I thought. Someone will be having to set up the treasurydirect account for them for sure. 

 

Like I mentioned in the other thread, i'm just treating this just as a savings/1 yr CD account. But that's a good point if the coupons start going up. 

 

I wonder what happens if/when the inflation index linked to i-bonds start to decrease and quit being such a great deal will people realize it or think they'll just keep earning the 9% interest rate in perpetuity. Kind of has a twinge of Buffet's: "What the wise man does in the beginning, the fool does in the end" to it.

[thepupil]

whatever the shoe shine boy is saying, i-bonds can't ever decrease in nominal value so their popularity or lack thereof doesn't matter unless treasury decides to change allowed amount or something. 

 

if youre saying inflation fears may be peaking...maybe??? but idk

[crs223]

3 hours ago, Gamecock-YT said:

I wonder what happens if/when the inflation index linked to i-bonds start to decrease and quit being such a great deal will people realize it or think they'll just keep earning the 9% interest rate in perpetuity. Kind of has a twinge of Buffet's: "What the wise man does in the beginning, the fool does in the end" to it.

 

Let's assume a "late coming fool" buys now (interest rate is 9%) and later realizes ibond rate has dropped to 1%.

 

Problem?  No,  Just sell it back to the treasury at par if you don't want it anymore.

 

What am I missing?

 

Caveats:

• Must hold for one year
• Hold for less than five years and you forfeit 1 quarter of interest

[bizaro86]

3 hours ago, crs223 said:

 

Let's assume a "late coming fool" buys now (interest rate is 9%) and later realizes ibond rate has dropped to 1%.

 

Problem?  No,  Just sell it back to the treasury at par if you don't want it anymore.

 

What am I missing?

 

Caveats:

• Must hold for one year
• Hold for less than five years and you forfeit 1 quarter of interest

 

I think the problem for the late coming fool is the same as gym memberships. They won't realize the rate has changed because they aren't paying attention, and will just leave the money in a sub optimal investment.

[Gamecock-YT]

5 hours ago, bizaro86 said:

 

I think the problem for the late coming fool is the same as gym memberships. They won't realize the rate has changed because they aren't paying attention, and will just leave the money in a sub optimal investment.

 

Exactly this. 

[fareastwarriors]

6 hours ago, bizaro86 said:

 

because they aren't paying attention, and will just leave the money in a sub optimal investment.

 

For some people, not paying attention might be optimal! At least they aren't going to lose it trying to be fancy and investing into things they don't know anything about!

[bizaro86]

5 hours ago, fareastwarriors said:

 

For some people, not paying attention might be optimal! At least they aren't going to lose it trying to be fancy and investing into things they don't know anything about!

 

I agree that for the vast majority of people making a minimal number of simple decisions is best. For a permanent hold for someone not paying attention I like SPY better than I bonds, although the I bonds are probably as good as you can do for a 'set and forget fixed income.

[Ross812]

I've had a Treasury Direct account since 2010 or 11 and have some paper bonds from the mid 2000's with 1%+ fixed rates. I've always viewed iBonds as a good alternative to a savings account. 

 

Word of warning - don't try to do anything too fancy with the website. I tried to add a new funding source and the site hung. I refreshed my browser and it locked my account. A three minute phone prompt to unlock my account lead to a message to call back later and a hang up; I tried maybe once or twice a week to get through for several weeks. I got through the prompt one morning two weeks ago and spent 5 hours on hold to get the account unlocked. 

[CorpRaider]

On 5/16/2022 at 5:30 AM, Gamecock-YT said:

 

Ha that's true. My 90 year old grandparents just sold the house they had been living in for 60 years and were trying to figure out what to do with the money, somehow it came up that i-bonds would make a good investment and they asked me what I thought. Someone will be having to set up the treasurydirect account for them for sure. 

 

Like I mentioned in the other thread, i'm just treating this just as a savings/1 yr CD account. But that's a good point if the coupons start going up. 

 

I wonder what happens if/when the inflation index linked to i-bonds start to decrease and quit being such a great deal will people realize it or think they'll just keep earning the 9% interest rate in perpetuity. Kind of has a twinge of Buffet's: "What the wise man does in the beginning, the fool does in the end" to it.

Yeah I'm a crappy son.  My parents should be laying the wood to these with their cash in the credit union and whatnot, but I just don't think they could handle the site and I just don't want to deal.  I already had to call myself one time after getting locked out and the guy let me in thankfully after I couldn't guess/recall my favorite movie. And I am VERY online.  hah.

Edited May 21, 2022 by CorpRaider

[thepupil]

welp...the bond bear market is over...for now

 

[Gregmal]

That’s typically what happens when the folks freak out for no reason. The worst inflation happened LAST YEAR, and extended into Q1…we got prints we should have expected, the Fed did, exactly as it said it was going to do, and it is my opinion the whole momo and computer driven stuff did it’s thing just like in late 2018.

 

Unless anyone else has real reasons for the sell off transpiring basically from 3rd week April until last week? It wasn’t a 50 bps hike and it wasn’t CPI prints we already new about. it wasn’t China COVID policy that was already done with. Perhaps sometimes markets just do funny things? In other words we get some opportunities to make money that we wouldn’t if they were always rational?

[RedLion]

@thepupil Nice call on this. I took the opposite side of this trade, fortunately not a big position, and sold short some TLT and bought puts on TLT. TLT is about 1.5% below my cost basis, but the puts are all down pretty dramatically, I have until August so I'm going to leave the trade on in either event. 

 

I'm curious how QT is going to play out with longer term yields. It seems like the FED could conceivably continue to raise short term rates, and prevent inverted yield curves (at least for a while) with accelerated QT. I'm making a not so educated guess that the FED is trying to slowdown the housing market, and it seems like 5% mortgages aren't going to do all that much. 

 

I have a very large cash position (not due to market timing, but a private investment has been paying off handsomely) that I'm using to buy into stocks (and hopefully private real estate) on the way down. I've bought all the I bonds I can, but have been thinking about moving all of my cash into Treasury Bills to automatically roll over. I did the math, and being in a high state income tax bracket in California, this is a no brainer compared to CDs or high yield savings accounts. Just placed a small order on Treasury Direct for 4 week bills to automatically roll over, I plan to move the vast majority of cash over to treasury direct, although I'm looking at durations between 4 weeks and 2 years. 

[thepupil]

On 5/27/2022 at 2:15 PM, RedLion said:

@thepupil Nice call on this. I took the opposite side of this trade, fortunately not a big position, and sold short some TLT and bought puts on TLT. TLT is about 1.5% below my cost basis, but the puts are all down pretty dramatically, I have until August so I'm going to leave the trade on in either event. 

 

I'm curious how QT is going to play out with longer term yields. It seems like the FED could conceivably continue to raise short term rates, and prevent inverted yield curves (at least for a while) with accelerated QT. I'm making a not so educated guess that the FED is trying to slowdown the housing market, and it seems like 5% mortgages aren't going to do all that much. 

 

I have a very large cash position (not due to market timing, but a private investment has been paying off handsomely) that I'm using to buy into stocks (and hopefully private real estate) on the way down. I've bought all the I bonds I can, but have been thinking about moving all of my cash into Treasury Bills to automatically roll over. I did the math, and being in a high state income tax bracket in California, this is a no brainer compared to CDs or high yield savings accounts. Just placed a small order on Treasury Direct for 4 week bills to automatically roll over, I plan to move the vast majority of cash over to treasury direct, although I'm looking at durations between 4 weeks and 2 years. 

 

I don't think long term rates beyond that which we have now are in anyone's interest and also would be out of line with long term demographic/indebtedness trends. I'd also note that significantly higher US yields (across the curve) will make continue to make US FI very yieldy relative to the rest of the developed world.

 

Austrian 2117's trade at 2.5%, German 30 yr at 1.5%, 40 year JGB's at 1.1%. German 2 yr at 0.6%, Japan 2 yr at -0.08%

 

bonds are about flat since the start of this thread, I remain hopeful that I'm wrong and that rates (moderately) increase and allow for safe bonds to earn higher returns (getting there will of course entail some losses). But I think it's more likely than not that we're closer to bottom in bonds than most think.

 

we'll see...many people think i'm very wrong on this...

 

[Gregmal]

It’s only getting started! Look at all the job cuts in tech!
 

I love periods like this where there is so much data out there, much of which ultimately irrelevant, but good enough for the alarmists to keep digging themselves deeper…much of which is ultimately what allows these sort of opportunities to occur.

 

Yet another solid jobs report today. Despite the elitists best effort to derail it, the train chugs on!

[Spekulatius]

It's not a recession until $GS shares are below tangible book.

[John Hjorth]

Get real & f**c bonds.

[Viking]

Mr Market expects inflation to be transitory (come down significantly over the next year to below 3%). If that happens current bond yields make sense (that is what is currently ‘priced in’). Mr Market thinks the Fed (and global central banks) are going to engineer a soft landing. 
 

I remain unconvinced. I think there is one way we get inflation under control in the next 12-18 months: we get a recession.
 

Why does Mr Market think inflation will be much lower in 2H of 2023?
1.) HOPE. The Ukraine war will end. China will end zero covid policy. Oil will go back to $70. Food shortages don’t happen. Real estate prices/rent increases will stop. Workers will magically appear and flood back into the labour force. Etc, etc. Well good luck with that investing strategy. 

2.) FAITH IN THE FED. Really? Seriously?
 

My guess is inflation will remain stickier (higher) for longer. We will get head fakes - soon all we will be hearing about is ‘inflation has peaked’ - and financial markets will likely bounce higher and perhaps much higher. Until it becomes clear a few months later that persistently high inflation of 5 to 6% is still a bitch. 
 

So my number one trade idea is to expect lots of volatility over the next year - with financial markets hitting lower lows. UNTIL THE FED PIVOTS. Yes, i think it is highly likely we will get another Fed pivot. Caused by? Recession. Or something important breaking (that financial stability thing). 
 

I am also NOT all doom and gloom. The US economy continues to chug along. (Real) Interest rates remain highly accommodative.  Deglobalization will be good for growth for North America. These (and other factors) are all likely going to help keep inflation stubbornly high.

 

So bonds continue to be off limits for me. 

Edited June 5, 2022 by Viking

[SharperDingaan]

Bonds have a long way to fall yet.

We are well below 'normal' interest rates. 10 yr Canada's currently trade at around 3.5%, the BoC has repeatedly stated they will raise rates 150-200bp by year end, and the resultant 'more normal' 5.5% is barely what we were at in 2005. By around year end we will just be back to normal.  

 

Of course, the times are not normal - we have aggressive inflation.

At least two generations of the current crop of analysts have never seen inflation, yet suddenly they are all experts on it? Yet push them, and most will cite the 1970'-80's as the inflation example - 'cause history repeats! Charting substituting for experience, with little/zero adjustment for this being 30+ years ago. So hardly surprising, that when you talk to old geezers who were actually there at the time, they have a very different view (after they finish laughing). 

 

Higher interest rates = lower share valuations = recession pending! So if interest rates really rise, it must be a depression, and we're really f****d !!!!  However, we know Mr. Market is a manic/depressive - so if we're pretty sure Mr. Manic will become depressive if rates really rise, isn't that the opportunity? 

 

SD

[tede02]

There's been a big move over the last week. The 1-year treasury broke through 3% this morning. Just 9 months ago it was under 0.10%. 

[thepupil]

yes, the bond index yields about 4% now with duration of 6.4. 1 year ago it was 1.45% with 6.6 duration. the index is getting a little shorter in duration and the yield is getting much better. I think the risk / reward on bond index on the whole is quite reasonable. 

 

there's a lot of hullabaloo about the MBS market right now as fed tightens...I think MBS are very interesting right now w/ 4% yield, virtually no credit risk and prices below par, such that prepays/defaults are actually a good thing now. MBS is 2nd largest portion of bond index. 

 

bonds down 3% since beginning of thread, but much better than stocks. think that bonds will continue to outperform if rates rise (but be down). 

 

[thepupil]

US Investment-Grade Bond Yields Surge to the Highest Since 2009

• High-grade yields have more than doubled this year to 4.89%
• Higher rates, global economic worries push borrowing costs up

By Josyana Joshua

(Bloomberg) -- 

A fresh selloff in the world’s biggest bond market is ramping up funding costs across Corporate America as investment-grade yields spike to the highest since October 2009.

The yield on the benchmark Bloomberg high-grade index closed at 4.89% on Monday amid the rout in Treasuries -- recalling levels last seen in the depths of the global financial crisis and higher than than the 4.58% rate in the March 2020 pandemic rout.