Howdy, Stranger!

It looks like you're new here. If you want to get involved, click one of these buttons!

In this Discussion

Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

    Support MFO

  • Donate through PayPal

Is this the beginning of the bond debacle?

edited December 2012 in Fund Discussions
Not a pretty picture this week in high yield munis. And look at the volume on the downside the other day and today. Could be due to some scuttlebutt on the taxing of munis, but who knows? This is reason number 1001 why I would never touch an exchange traded ETF with a ten foot pole.

http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=hyd&insttype=&freq=&show=&x=25&y=20

Does everyone have a precise exit point for their bond portfolio such as a mental trailing stop if the flight from bonds finally occurs?

Comments

  • edited December 2012
    Howdy Hiyield007,

    We don't have any muni investments, but I watch this area, too.
    Muni's appear to have lost more ground today (Friday), and noting a broad selection of Fidelity's muni offerings that I have watched this week; appears that state and broad based muni funds will give up in the range of -.4% through at least -1.0% for the week.
    I will admit that I don't understand what is going on in this area, at this time; although one short blip I noted, stated that there was a lack of demand, versus actual selling.

    As to an exit point. The first major watch point would be sustained negative pricing for a 5 day business period. This would likely have to show in multiple bond sectors; although there will be the first in line to reflect changes. There has been flattening in some sectors for the past several months, with some areas regaining some of the lost pricing. Selling any areas/funds would not necessary be enmass for a holding, but perhaps 25% at a time.
    The above noted is written in the sense of a gradual decline in pricing, versus very erratic moves at a faster pace.
    This chart is a mixed bag of some bond funds we currently hold.
    The chart will load as a line graph at 200 business days time frame. Move the left side slider located at the left end of the slider to the right for about a 100 period current through Dec. 13 and review the chart again. At this point, you may also choose to go to the far left and click upon the teal and red (Histogram charting) for a bar chart view. Now move the slider further to the right for a 30 day view.
    This may give a better perspective of recent returns for these sectors. Obviously, we have a few bond funds that have lost some juice; or the managers have lost some juice.:)
    While we can't expect to pull 1% a month from most of our bond funds, this will likely be our average return of the full mix for the YTD.
    Some of these funds may get a rework after we return from the holiday period, which will find me/us away from electronic devices with which to make any changes.
    I don't find comfort in this fact; as it seems every time we are away somewhere, the market does some funny stuff.
    Needless to say, this is all speculation at this point in time, with all of the political games in place at this time. What a way to end an investing year, eh?

    Regards,
    Catch
  • There's a curious compendium of warnings about the bond market (including a link to my Amazon piece) at the LearnBonds site. It might be worth browsing: learnbonds.com/ray-dalio-on-bonds/

    As ever,

    David
  • Hi David,
    I browsed this story earlier. Mr. Dalio, has a most decent record during his investment career; and may have the gift and/or has developed a keen intuition regarding monetary flows.
    Thank you.
    Regards,
    Catch
  • By the way, during the last week PONDX which you like so much was doing quite well.
  • Reply to @andrei: Yes, up to 76% in PONDX and may roll over my other positions (already rolled over ABTYX) to get to 100% by year end. My exit point is (adjusting for the recent distribution) a 1% decline from highs. In 2012, less than 1% has contained all declines. So a decline of 1% could indicate its rhythm is changing. If I am wrong and it approaches new highs will just re enter. I played that game (selling and then having to rebuy) with tech funds before the bubble finally did burst in March 2000. Lots of people babbling about the bond bubble bursting, including myself. A crisis everyone sees coming often comes much later than anticipated.
  • Are there similar concerns regarding international bonds?
  • edited December 2012
    Why Central Banks Can't Let Up on Stimulus

    As for the bond-buying programs -- aka quantitative easing -- that dovetail with the low interest rates, the U.S. central bank alone shortly will eclipse $3 trillion on its balance sheet and is expected to end 2013 north of $4 trillion in electronically created money.

    Globally, that figure is, well, a lot.

    "When you add up all the central banks in the world, it's going to be over $9 trillion," said Marc Doss, regional chief investment officer for Wells Fargo Private Bank. "That's like creating the second-largest economy in the world out of thin air."

    http://finance.yahoo.com/news/why-central-banks-cant-let-204737141.html

    Hotel California

    In a CNBC interview Wednesday evening, the Wall Street Journal’s Jon Hilsenrath called Dr. Bernanke a “gunslinger.” Our Fed chairman is highly intelligent, thoughtful, polite, soft-spoken, seemingly earnest and a huge, huge gambler. And he’s not about to fold a bad hand. Almost four years ago, I wrote that Fed reflationary measures were essentially “betting the ranch.” This week they again doubled down.

    http://prudentbear.com/index.php/creditbubblebulletinview?art_id=10737

    In for a penny in for a pound. Things initiated as temporary are how the world is now.
    A bond debacle in the form of lessened bond fund nav's may be of a lesser concern
    amongst imagined and unimagined outcomes of a confrontation at OK Corral.
    The actions and behavior of financial markets and credit markets are of primary
    importance precisely because leadership elected and appointed deem them secondary.
    Several former sovereign states now wards of super-sovereign states have come to understand the unspoken ordering of things or yet failing to understand are living with its dictates just the same.

    "Inside the Risky Bets of the Central Banks"

    Serious matters follow appetizers, wine and small talk, according to people familiar with the dinners. Mr. King typically asks his colleagues to talk about the outlook in their respective countries. Others ask follow-up questions. The gatherings yield no transcripts or minutes. No staff is allowed.

    "A big secret of central bank cooperation," Mr. King said, "is that you can just pick up a phone and have an agreement on something very quickly" in a crisis.

    This summer, the central banking clique kept in close touch as they readied for a new round of monetary activism. On June 8, Mr. Bernanke and Mr. King spoke by phone for a half-hour before policy meetings at their central banks, according to Mr. Bernanke's phone records, obtained in a public records request. A few days later, Mr. Bernanke spoke by phone with Mark Carney, head of the Bank of Canada—and last month named as Mr. King's successor. Shortly after, Mr. Bernanke called Stanley Fischer, head of the Bank of Israel, and a former MIT professor who was Mr. Bernanke's dissertation adviser.

    On June 18, Mr. Bernanke had an early morning call from his home on Capitol Hill with Mr. Draghi and Mr. King, according to his phone records, as the men assessed the impact of the Greek election on Europe's financial system.

    Mr. Bernanke sat quietly during the discussion. But he and the other major central bankers were already primed to launch a new monetary onslaught.

    A few days later, the ECB announced an agreement to buy bonds of struggling European governments in exchange for a country's adherence to fiscal austerity.

    Then the Fed announced plans to buy bonds every month until U.S. job market improves "substantially." The BOJ, despite Mr. Shirakawa's hesitance, soon followed with news it also was expanding its bond-buying program.

    http://online.wsj.com/article/SB10001424127887323717004578157152464486598.html

    http://www.globaliamagazine.com/?id=1404

    You're in good hands with AllState.
  • hi Junkster. Muni bonds are not necessarily predicting the whole credit market performance. They are unique in the sense that they were subject to panic selling late in 2010 - early 2011 when their tax exempt yields produced 120% of the equivalent taxable treasuries. the fixing of this abnormality took over a year, and as is usually the case, those watching the recent performance continued to pile up driving muni yields not only to absolute record lows, but also lows relatively to treasuries. Now with 28% tax free limitation on the fiscal cliff table, many just take their profits and walk away taking a wait and see approach. so i wouldn't extrapolate the muni market situation to high yield, mortgages, loans or any other credit instruments in which you are investing.
  • edited December 2012
    The user and all related content has been deleted.
  • The user and all related content has been deleted.
  • That's not much of a correction. Remember stocks shot up last week, window dressing for the end of the year.
  • edited December 2012
    The gap between the returns of long Treasuries and equivalent munis was nearly 1% Friday; Vanguard's long T fund was UP 0.6%, while the Vanguard & Price long muni funds were DOWN a bit more than 0.3%. As others have said, this very recent selloff is apparently more about tax uncertainty than any condemnation of bonds (or even "safe" bonds) as a whole.
  • Reply to @wsanders: Not much of a correction? Maybe not in the open end high yield muni funds which are but 1% off their recent all time highs. But in HYD I would call a sudden 4.8% decline off all time highs and wiping out all the price gains since July a correction. Even more so since it's a plodding bond instrument. Again, one reason why I abhor ETFs. They can go to a discount to NAV like HYD in the blink of an eye and wipe out months and months of price gains. Maybe this is all unfounded worries about the taxation of munis and HYD will go right back to their highs. But in the meantime, I could never live with a 4.8% drawdown in any of my bond positions.

    http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=hyd&insttype=&freq=&show=&x=28&y=15
  • Reply to @Maurice: I'm negotiating now with Matthews, to see if Teresa Kong, PM of Matthews Asia Strategic Income, would be willing to do a conference call with us in January. She struck me as really smart when we spoke at length earlier this year. With luck, she might be willing to help us think through the question. I'll keep you posted as talks progress.

    David
  • Reply to @David_Snowball: That would be outstanding, David; great idea.
Sign In or Register to comment.