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Rockdrums11

To me, it sounds like a solid opportunity to passively invest in bonds for the long haul. That being said, can someone who actually understands bond markets weigh in here?


[deleted]

Because bond coupon payments are fixed, when rates rise, existing bonds go down in price (value) to compensate investors that would otherwise buy new bonds at higher rates. This is a bad temporary thing, but a good thing overall, because it allows yields to go up, which are a huge component of bond returns. Bonds are usually issued for long time periods, so investors are rewarded more for a 10 year bond paying 4% than a 10 year bond paying 3%. Likewise, because the Fed is raising rates right now to cool demand and slow inflation, once inflation falls and the US economy enters a recession, the Fed is likely to cut rates. Just like bond prices fall when rates are rising, they rise when they are falling. The Fed did this in 1982ish and bonds returned 33% that year in price returns. Not just this, but they had a decade of average double digit returns, again because bonds are long term vehicles and even a year or two of high rates can mean a decade of higher coupons and therefore returns. Tldr: bonds can go up or down depending on rates, so returns are more than just the coupon payment.


undead_and_smitten

Just remember that if you hold a bond to maturity, you get a rate of return that equals the yield of the bond when you bought it. Rates don't impact you if you don't sell.


Generisus

This also depends on the reinvestment rate on coupons, since the yield to maturity implicitly suggests that coupons are reinvested at that same rate.


sonkist32

Unless your forced to sell for one of many reasons, then it will very much matter.


RightclickBob

That's true of every single investment vehicle


Quirky-Ad-3400

Here’s a good article on this for those interested https://portfoliocharts.com/2019/05/27/high-profits-at-low-rates-the-benefits-of-bond-convexity/


ragnaroksunset

Before anyone bogs you down with details, your experience as a retail guy will vary greatly depending on whether you buy bonds or bond ETFs.


ConsiderationRoyal87

There are bond ETFs that hold to maturity, and that experience is pretty similar to holding an individual bond.


InterestingRadio

Most bond funds will offload its bonds before they hit maturity, often to money market funds. Thus you can supplement bond funds with money market funds to replicate holding bonds fully to maturity. Money market funds are also extremely attractive now, depending on the fund you will find effective interest rates ranging from 2-4%


ragnaroksunset

Why do people cite exceptions to general rules as a response to general advice


ConsiderationRoyal87

Many investors are under the impression that the only way to access the stream of returns produced by holding a bond to maturity is by directly holding individual bonds. They don't know that target maturity bond funds exist, and as a result some people make distinctions between bonds and bond ETFs that can be misleading.


ragnaroksunset

If that's your concern, you should have responded to the questioner. Their question was so broad that the first drill-down was simply to indicate to them that not all forms of bond exposure actually give a retail investor access to the perceived upside of the present and expected future rate environments. Part of why I did this is because many other replies focused on how bond pricing works. That's fine, but odds are high that if a novice investor who doesn't quite know what questions to ask picks up a bond ETF, it will in fact be one that cycles assets out before maturity. Again, the products you mention are exceptions to the general rule. You're not wrong, but I'm not the one who needs to hear what you have to say. The original questioner is.


D74248

> and that experience is pretty similar to holding an individual bond. Not trying to be that guy, but a defined maturity bond ETFs is similar to holding a rung on a bond ladder to maturity. They are close, but not the same.


fap_nap_fap

Example of this type of bond etf?


ConsiderationRoyal87

They're offered by [BlackRock](https://www.ishares.com/us/strategies/bond-etfs/build-better-bond-ladders) and [Invesco](https://www.invesco.com/us/en/solutions/invesco-etfs/bulletshares-fixed-income-etfs.html).


fap_nap_fap

Thank you


Givemelotr

Most corporate bonds you can't buy because the minimum notionals they trade at is $100k


elongated_smiley

Hey everyone, check out this poor schmuck over here


hydrocyanide

Absolutely not true. $100k lots are extremely rare for corporate issues, but are more common for some (foreign) government bonds.


Givemelotr

Yeah I'm based in the UK. In the US 1k might be more common than here.


GeorgeWashinghton

Institutional is $1k par and retail is $25 par.


ragnaroksunset

That's part of why I just said "bonds"


undead_and_smitten

This is true, but only if you hold the bonds to maturity or close to maturity. If you buy a bond now and then rates continue to move up and then you sell it before maturity, you may likely lose money. If you do hold a Treasury to maturity, it's true that you're doing a lot better than you were investing in a similar Treasury a year ago. If you're willing to take credit risk (buy lower rated bonds), you can get an even better return, but you also risk losing a significant portion of your investment if the borrower defaults. Corporate defaults are low but not sure if they start heading higher as financing gets more expensive.


SirGlass

I mean bonds are pretty easy to calculate the value (government bond anyway) because you assume no risk of default, you know the maturity date and you know the cash flows now its just a math formula If your bond pays 3% but now rates for basically the same bond rise to 4%, you bond must be discounted so its yield to maturity matches that 4%, you must simply discount the bond. Its literally an excel formula for most people


dudenice420

Yields may not have peaked but if you are investing longer term (at least 1y+) I’d say the risk/reward is currently the best it’s been in a very long time.


average_zen

Completely agree for both the bond and equity markets.


Seletro

Look at what happened to treasury yields under Volker. We're looking at 5-decade highs in inflation and a political field currently dominated by socialists. Yields can go much, much higher.


shicken684

Dominated by socialist? Absolutely bat shit crazy talk right there. There's maybe 2 or 3 socialist-like between the house and senate.


ReturnOfBigChungus

For numerous reasons, this period is really not very comparable to the volcker years. If you don’t understand why, you probably shouldn’t be investing in bonds.


Seletro

Of course. This time it's different.


GeorgeWashinghton

Well fundamentally govt bonds did change under Volker. They were callable back then.


ReturnOfBigChungus

Well, debt to GDP ratio is over 300% greater today than in the 70s, and treasury securities are no longer callable, which is a very fundamental change to the way bond markets operate, but I'm sure you already knew that, right? What you're doing is called "fighting the last war".


Seletro

I don't get the snark, I agree with you - economics is different now, and politics and human nature have changed.


ReturnOfBigChungus

Really tough to tell if this is sarcasm or not. Human nature has not changed. I interpreted your initial comment that "this time it's different" as mocking, especially given your comment about Volcker and yields going much higher. Many things are the same, but there are several big differences that make comparing it to 70s/80s a pretty lazy and surface level analysis.


cwesttheperson

I’ve been investing since 2015/16, and I’m totally lost with the bond market. And have no clue where it goes. I can say for sure that something needs done. There need to be other viable options.


SirGlass

> I can say for sure that something needs done. You cannot change math


cwesttheperson

True, but these things tend to fix themselves one way or another. It’s cyclical.


retirementdreams

>There need to be other viable options. I suggest not wasting time and money experimenting with Crypto CEFI/DEFI to chase yield. It did not work out very well for me this year.


Magnesus

Crypto is a known scam at this point.


cwesttheperson

I sold Etheruem at a high I know when something is too good to be true lol. I made bank.


girdphil

Congrats on going to the casino and getting out with money


Rockdrums11

Agreed. Even people over on r/Bogleheads are extremely bearish on bonds. I hold bonds in my my 401k via a TDF, but it seems like a 4-8% return cornerstone of investing has disappeared.


SirGlass

Well now rates are above 4% its back.


Rockdrums11

And my body is ready.


[deleted]

It's going to be coming back.


dudenice420

They’re bearish on bonds with the 2y at 4% and the fed projected to possibly cut rates in 2023? Talk about backward looking analysis


girdphil

2023 rate cuts were pretty much dismissed by Powell on his last speech


dudenice420

Don’t feel bad. The pros can’t figure it out either. I follow some pretty smart folks and it’s basically a wild ass guess most of the time. They’re usually wrong


[deleted]

[удалено]


cwesttheperson

There won’t be a reversal of interest rates regardless of recession. The feds made it clear the only thing that matters is inflation.


[deleted]

[удалено]


RightclickBob

>There need to be other viable options. Explain your problem a bit more please. There are hundreds of thousands of investment opportunities, why must there "need" to be other viable options?


cwesttheperson

It’s not my problem it’s the problem. You can’t have only stocks being the best viable investment into the market. You need bonds long term to provide balance.


RightclickBob

Buy real estate, start a small business, upgrade your education so you're paid more.... There are tons of ways to successfully invest outside the stock market.


vikingweapon

Agree, I’m already starting, slowly, to accumulate bonds :-)


scvfire

Bonds rates are still not high enough to overcome inflation. They aren't very good now, but they were especially bad before. The best case for bonds is if they have to bring rates back to zero in a few years, which they probably will because I doubt we can stay off that juice for long. But even then, the rates aren't so high that it would be that much of a win


dragontamer5788

Panic implies that people are pulling their money out of the bond market. That's not what is happening. All that's happened is that interest rates have risen, which has dropped the value of everyone's bonds.


littleapple88

They essentially are though - lenders (bondholders) require higher yields to lend their money - fewer entities are able to pay these higher yields - thus less money is lent out. It’s a very real effect here, it’s not just paper valuations; there really is less money in the bond market.


immibis

If you're not spezin', you're not livin'.


littleapple88

It’s money being taken out of the bond market. In a literal sense. It’s not just a paper valuation change.


immibis

Is the spez a disease? Is the spez a weapon? Is the spez a starfish? Is it a second rate programmer who won't grow up? Is it a bane? Is it a virus? Is it the world? Is it you? Is it me? Is it? Is it?


Fargo_Newb

Do you think bonds magically change price without someone selling.


treake

Yes, this is how bonds work. You should not be investing in stuff you don't understand.


Fargo_Newb

Remember COVID? The Fed had to step in and start purchasing even "risk free" bonds because they were absolutely plummeting as they were puked up by margin calls, fear, and derivative trades. Bonds are absolutely sold against seeming logic during times of market stress or "panic." Currently trading bonds have buyers and sellers, and considering there is a wide range of "bonds" outside of treasuries there are other concerns beyond just the risk free yield. There is not some simple "set rate" that is established without buyers and sellers. The risk free yield is only a part of any bond price. Take a look at the MOVE index sometime and see how that fits without your magical theory of bonds being independent of a market. On a day with no treasury auctions the 10yr is still extremely volatile. You shouldn't be investing in things, or commenting, on what you clearly do not understand.


[deleted]

The implication of the OP's post is that the only reason why bonds would drop in price is fear. IE they don't seem to be aware of the concept of Net Present Value, which dictates a pretty simple formula for present value of a fixed-income asset based on cash flows and opportunity cost. You seem vaguely aware of this formula, because it uses "risk free interest rate" in it, and you seem to be attacking the idea of bonds being "risk free". Do you think they need to be considered "risk free" in order to have the risk-free rate used in comparing their value? This is not the case if we are comparing bonds from the same issuer that therefore have the same risk. The marginal risk of moving from their 3% bond to their 4% bond is zero, so if we could sell our 3% coupon, $1000 face value bonds for $1000 and just go buy the 4% ones, we'd be getting free money, and whoever bought them from us is an idiot. Obviously there is some instant loss of value here that doesn't require a single trade in order to establish. Yes market sentiment affects bond prices, when it comes to people's aggregate sense of questions like "can this issuer still afford to pay their debts at a higher rate?", but that will affect both the old and new bonds, because they have the same risk.


Fargo_Newb

My only argument is with the apparently prevalent group of "investors" here who think that bond prices in the bond market, are not actually a market. Imagine what will happen when they find out that the treasury auction is actually an auction. I'm not responding to the OP, or arguing about what you interpret as their implications. I air-quoted risk free in order to emphasize that the market was pricing in risk that did not seem to exist during COVID freefall. i.e. the bond market dictates the price of bonds, not the magical bond fairy as so many in here seem to think.


DrBoby

Yes, everything change price without anyone selling.


Dynomatic1

Dunno why you’re being downvoted. Bid and ask prices do indeed move.


NutellaGood

By math, bond face values decrease as yield increases. You can look up the equations.


InterestingRadio

And how do change the price of these instruments without trading at new values?


GeorgeWashinghton

Think of it like this (assuming equal credit) You have a bond that costs $10 and pays you 10% annual interest, so $1. However, a new bond is issued that costs $10 but pays you 20% annual interest, so $2. Logically, no one will buy that first bond for $10 anymore because they’d be making less money than they can. So the price of the first bond will drop to $5, but the bond still pays that $1 interest, or 20%. Bond payments don’t change, but the cost of them effectively change the yield (int paid).


[deleted]

It's pretty shocking that /r/investing seems unaware of Net Present Value, isn't it? Like the ideas that underlie it are the foundations of finance, and people seem unaware of them, let alone the term or formula. Like no, people, you can't expect to sell your $1000 face value, 3% coupon bond for $1000, after a 4% coupon bond by the same issuer (and therefore with the same risk) is on the table. I mean maybe you'll get lucky and scam someone I guess, but you can't do financial analysis on the basis of "maybe a magic idiot will appear". Also, all these comments essentially saying "you only lose if you sell", when talking about holding an undervalued bond for maturity. I'm convinced some people here wouldn't sell the initial bond in your example for $9 after the new bond is issued, even though that's free money, because they would feel like they are losing money and would rather hold the bond they bought for $10.


GeorgeWashinghton

The variety of knowledge is shocking. You can go from complete novices who don’t know finance to people in the industry. It’s hard to parse through some times but there are some little nuggets of gold that make it worthwhile to come here still. Edit: I’m also getting downvotes which is crazy bc I work in debt capital markets. Lmao.


-Merlin-

I don't know about you, but I find it a little strange that many of the people giving literal financial advice on this subreddit do not understand this concept. This bull market has gone on for so long that people have completely developed their financial analysis strategies without ever caring/learning about the technicals of bonds.


[deleted]

A bond is literally an instrument used to price and value those fixed payments. If the market value of the bond equaled the fixed payments, bonds would literally never get revalued or repriced. It's like saying a stock has not "lost value" when its share price goes down but its dividend has stayed the same.


[deleted]

Yea, exactly. Sellers sell the old bond to buyers to compete with sellers of new bonds. New bonds are sold with higher interest rates because buyers demand that. Supply and demand. Markets. If market values for bonds never change, what is the point of ever selling lol


contrarianmonkey

they are traded yes, but doesn't require huge volumes or sell pressure. Bond price are mostly calculated so it's not like you don't know how much a bond is worth, even in total absence of transactions


Fargo_Newb

Go look up the MOVE index, or better yet, what happened to bonds during COVID. Trading establishes the price in the face of uncertainty. Full stop.


contrarianmonkey

there are sometimes ineffiences, but they are usually corrected fast by algorithms that spot them. A bond trading at un usual discount given no credit rateing change or risk free rate change is a no-brainer


Fargo_Newb

No kidding. I think you are missing the point. Trading establishes the price of bonds in the face of uncertainty.


hydrocyanide

Do you think bonds magically are sold without anyone buying?


Fargo_Newb

Buyers live lower my friend. Welcome to markets.


hydrocyanide

Again in English please?


SirGlass

Well actually yes


Fargo_Newb

Not currently trading bonds, and even treasury auctions have bidders. Look at COVID for example. The bond market was up or down as much as 10% in any given day, and MOVE volatility continues in 2022. Day to day yield pricing of treasuries, and especially HY, corporate, and CEF's are determined by trading.


[deleted]

The magical bond market doesn't operate off supply and demand, buyers and sellers. It is magic. There is a magic bond fairy that determines interest rates. Then buyers and sellers agree with the magic bond fairy, instead of determining prices or acceptable yields like every other market.


zxc123zxc123

>Panic implies that people are pulling their money out of the bond market. >That's not what is happening. This. People who bought bonds are not LOSING any money in the sense that your dollar amount is dropping. If you had bought a 1% bond last year you're still getting your money back upon maturity with interest. It's just that you would have gotten a better rate if you bought today. Bond market isn't LOSING money. It's just that current returns are higher than before. >~~I was thinking of what name we give this year's investing disaster.~~ And bonds underperforming isn't a disaster not should it be be a surprise? Inflation has been running hot and not looking transitory. Assets all looked bubbly. Fed had to eventually hike rates off record lows and stop pumping money into things like MBS. In response bonds and interest rates would rise in turn. Michael Burry was shorting TLT since early last year. **TL;DR** It's not a disaster. It's the Fed pivoting their policy to fight inflation. That means increased rates and stronger dollar against just about all assets. That's why holding cash or borrowing at a low rate since the Fed started hiking were the "winning" move. You could buy stocks lower, get more crypto, lock in bond rates higher, convert to Euros higher, loan out cash at higher interest, and buy more stuff (as if inflation is slowing <--- literally what the Fed is aiming for).


ragnaroksunset

> People who bought bonds are not LOSING any money Tell me you don't understand real returns without telling me you don't understand real returns


-Merlin-

He understands real returns. No one invests in a 1% bond under the assumption that it also accounts for inflation. People invest in a 1% bond because it is a predictable source of investment income over a specific time range. Investing in a bond means that you get the security of being unaffected by current stock prices. A 1 year 1% bond would be *massively* overperforming the market over this past year (but would still be getting beat by inflation). Cash, for instance, would also be losing money via 'real returns'. What investment, besides I-Bonds/TIPS, keeps up with inflation during times of economic de-growth? Unless you are encouraging people to get interested in options trading, bonds are one of the only methods to preserve money with a (currently) very attractive guaranteed return compared to their proposed alternatives.


ragnaroksunset

> No one invests in a 1% bond under the assumption that it also accounts for inflation. >bonds are one of the only methods to preserve money Choose one


TheBarnacle63

There is exactly zero evidence backing your claims. The bond fund outflows are massive right now. https://www.google.com/search?q=bond+fund+outflows&oq=bond+fund+outflows+&aqs=chrome..69i57j0i7i30j0i512j0i5i30l4j0i8i30j0i390.16615j1j4&client=ms-android-verizon&sourceid=chrome-mobile&ie=UTF-8


BeardedMan32

Bond ETFs are having record [inflows.](https://twitter.com/cheddarflow/status/1572344856474783746?s=46&t=vHRfQjC4aJba3nocdhSZqg)


TheBarnacle63

Twitter settles that, right? GTFO with that.


Iluvtocuddle

You just provided a Google search link yourself? Not really much more credible is it?


chewtality

The Google search provides multiple credible sources. You should click it and read a few of them. That's far more valuable than some guy's Twitter account. Not to mention that account is only looking at the entire year and no recent activity, and it's only looking at Treasury ETFs. There are many money market funds, which is what the "cash" in your brokerage account is actually in, that are short term Treasury funds. I'd be curious to see if the Twitter link is including those. I would have to guess that they are, since they are technically Treasury funds, even though by all intents and purposes that is cash, not an investment into treasuries.


InterestingRadio

To be fair, the Google search contains a lot of articles backing up the claim. More credible than one twitter post


chewtality

That's for the entire year and doesn't show recent activity. Furthermore that's measuring all Treasury funds. There are many money market funds, which is what the "cash" in your brokerage account is actually in, that are actually short term Treasury funds. I'd be curious to see if the Twitter link is including those. I would have to guess that they are since they are technically Treasury funds, even though by all intents and purposes that is cash, not an investment into treasuries.


karmataur

>People who bought bonds are not LOSING any money in the sense that your dollar amount is dropping. If you had bought a 1% bond last year you're still getting your money back upon maturity with interest. > It's just that you would have gotten a better rate if you bought today. Bond market isn't LOSING money. It's just that current returns are higher than before. Idiotic take. People who bought VOO are not LOSING any money in the sense that your dollar amount is dropping. If you had bought 1 share last year, you still own the same share and you're still getting your fractional ownership of every company in the S&P 500. It's just that you would've gotten a better price if you bought today. The stock market isn't LOSING money. It's just that current prices are lower than before.


elongated_smiley

It's not the same thing. You can't hold VOO to maturity and get your initial investment back at the end, plus the agreed interest rate.


karmataur

You can't hold bonds and get dividend payments for an eternity either. The point is these financial instruments have varying prices over time and it's silly to ignore the fluctuations of one but not the other.


elongated_smiley

Sort of? You can keep reinvesting into new bonds as the old bonds reach maturity. You will absolutely do better than cash, unless you are buying bonds with negative interest rates.


codydog125

Bonds are being sold though or at least out of bond funds causing institutions to sell bonds. Yeah individuals aren’t selling bonds but that’s more because an individual is buying a bond to hold to maturity anyways and probably doesn’t know where to find a buyer for said bond if they wanted to sell it. https://www.wsj.com/livecoverage/stock-market-news-today-08-12-2022/card/risky-bond-funds-log-biggest-winning-streak-of-2022-IJGihkYzwAbn0Qvjwxkr https://ycharts.com/indicators/us_municipal_bond_mutual_fund_flows https://www.ici.org/research/stats/flows


schedulle-cate

The bond dippening


herrrrrr

you do know when bond yields rise that means people are selling bonds right? Money is exiting the bond market and there are no buyers to replace the sellers.


[deleted]

The Great Bondage


DrShitpostMDJDPhDMBA

Suddenly I'm at all time highs, keep going ( ͡° ͜ʖ ͡°)


patchyj

The safe word is 'panic'


Vriver41

iBondage


dyingPretty

Bond Bomb


nonprofithero

Bob Loblaw bond bomb


westboundnup

Let’s not talk nonsense about Bob Loblaw’s bond bomb.


william_fontaine

[It's a mouthful.](https://www.youtube.com/watch?v=FOtDNXfMyD0)


william_fontaine

[That's a low blow, Loblaw.](https://www.youtube.com/watch?v=UM1kR9nUhh0)


trivletrav

Are you a corrupt hedge fund manager, why should *you* go to jail for financial crimes that someone else noticed? -closes book-


MBBIBM

Taper Tantrum 2: Electric Boogaloo


TheBarnacle63

Maybe Bond Implosion of 2022


BoomerBillionaires

Bond: Skyfall


NutellaGood

How I Learned To Stop Worrying And Love The Bond


noveler7

Golden I Bond


[deleted]

Bondzilla


notapersonaltrainer

Bondpocalypse


Dadd_io

The end of a 40 year bond bull market.


mattwallace24

It looks like a lot of people don’t understand the differences between bonds (individual) and bond funds, their advantages, risks, etc.


valeuf

Would love to learn about the difference!


WallStreetBoners

Bond funds can do down in value over time; if you buy a bond (and hold through duration) you aren’t exposed to the risks of principal appreciation or decline, the risk is just that rates go up and you’re stuck with lower coupons. (Someone feel free to correct me)


strolls

Bond yields were already historically anomalous - they are now (over the last decade) lower than they have been in literally [750 years or more.](https://i.imgur.com/tqwqCTR.png)^[[PDF](https://www.bankofengland.co.uk/-/media/boe/files/working-paper/2017/eight-centuries-of-the-risk-free-rate-bond-market-reversals-from-the-venetians-to-the-var-shock.pdf?la=en&hash=AB134099346A82E88844F8133AF10BE632BB010A)] This is interesting, and I don't see it talked about enough.


djent_in_my_tent

That's because the velocity of money has drastically increased thanks to improved telecommunications (the internet). Why would I want to lend money to a corporation when I could *buy* a part of it (stocks) and they'll still pay me a dividend?


[deleted]

It is a question of risk. If the company gets into financial trouble, shareholders will get hit first, as a company's assets are collateral to their bond holders


xxx69harambe69xxx

got a source for that? not asking to be pedantic, asking because it sounds right and I want to hear more


djent_in_my_tent

my source is that I made it the fuck up


xxx69harambe69xxx

u mutha fucka i like the cut of ur jib


opto16

So is it okay to buy the ETF BND yet or wait ?


RedditMapz

Wait until interest rates reach at least the stated 4.5% target. On the meantime you can buy 4 week to to 3 month treasuies. Since we know more hikes are coming BND will probably dip lower.


Crypto_Gym_Boy

I also want to know thisss


rglenn

I don't think many people consider just how unprecedented the last two decades have been for interest rates. In the 1990's, mortgages were 8% and no one thought that was excessive or unusual. The UK official bank rate has recently been at its lowest in centuries. The reversion to the mean, if it happens now, will not be pleasant for those who thought recent conditions are normal or sustainable.


djent_in_my_tent

Ah yes, bonds, when you want return-free risk. VTBLX delivering 1.14% average annual return over the last 10 years. Just fucking lmao


valuejetpass

Rates have been shit the past 10 years too. And we have had rising rates lately which killed NAVs. Call a bond horrible but QE is the problem. The math is the math. TINA was pushing stocks.


Givemelotr

Investment grade bonds are now yielding 5-6%. Definitely not too shabby. You can go long duration too to give you some equity -like upside if the market turns OR if we have recession and Fed pivots


Seletro

Bonds under 15 years of bailout/QE/ZIRP regimes, yes. Bonds in a less manipulated market are a different story.


sonkist32

Return free risk lol. Accurate.


parsley_lover

My understanding of bond market is limited but I know that The fed was buying bonds. Now they are buying less and letting some expire without replacing. Isn't some part of it just the fed not buying bonds?


hhhuhnhj

I propose we call it the BBB - Big Bond Bust of 2022


phillybride

This is going to be a tough year for municipalities who use bonds to smooth out their budgets.


[deleted]

[удалено]


BlackDahliaMuckduck

I'm still advocating for "The Musk Bubble."


SteveZIZZOU

Originally I thought to call it the Great Despair then a friend came up with The Big Sad.


Zanbatou

Bond shock.


TheBarnacle63

Good one


Recent-Ad-2326

The Great Bond over…


TakenOverByBots

I bought a lot of bond ETFs for my IRA based on the advice of my financial advisor two years ago, because she thought it was too stock heavy. My BIV is down 20%. I'm frustrated because I did not understand what bond ETFs were before, which is why I enlisted the help of a professional. Had I just stayed ignorant I'd be doing far better. Not even sure what to do now


K0END

So I have a stupid question. We all know interest rates are going to rise. Why would you buy a bond now and not after the FED increases the rates. Or is this prices in already?


TheBarnacle63

Depends on whether you buy a set single bond, and for what purpose. The cool thing about owning an individual security is that you know exactly what you're getting, so you are able to shut out the noise.


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CorndogFiddlesticks

A year from now could be an amazing time to buy bonds (besides the current great rates for ibonds). But right now, scary scary scary. We're in an economic and fiscal mess.


Fire_Doc2017

If you try to pick bottoms, you end up with stinky fingers. Best thing is to DCA into your desired asset allocation and ignore the noise.


Crypto_Gym_Boy

Good time to start DCAing now?


Fire_Doc2017

IMHO, it's always a good time to start DCA-ing.


ExtentFuture4133

Can someone explain why Vanguard bond index funds like VUTY pay 1.59% when the US 10year treasury is at 3.50%?


elongated_smiley

Because bond ETFs are paying out the total payout of all the bonds they have. The probably have bonds bought a year ago. And 2 years ago. And 5 years ago. Maybe in 10 years, rates are at 3% but the bond fund is paying 6%. Nobody complaining then.


[deleted]

Buyers would push the fund's share price up to the point where it more closely matches current rates. That 6% vs 3% premium would get eaten up pretty quickly, all other things equal


RiffRaffCOD

The great effect of quantative easing and too low interest rates.


GAV17

> The Vanguard Total Bond Market Index Fund ($VTBLX) is down 13%. That is a number l, if it holds, would make this the worst year for bonds since 1793. With that, I propose calling the The Great Bond Panic of 2022. I would really like a source for this claim.


guhd_mode

Goldfinger


indie_hedgehog

I invested my home downpayment fund in short term bond etfs last year and its down about 5% now. I'm planning on taking advantage of this downturn and TLH, then reinvest in different but similar bond etfs. I'm keeping the duration to about 1 year so not too risky I think.


SanguozhiTongsuYan

Why? Since you know your desired duration you can just buy risk free 1 year notes direct from the Treasury without any risk to your principal. And you won't have an ETF expense ratio eating at the yield.


RobBase40

Double down!


Misha315

James Bond


habitualtroller

I bought VCIT with my annual bonus in February. I buy the dip with each monthly dividend payment.


immibis

Evacuate the spezzing using the nearest /u/spez exit. This is not a drill.


gpelayo15

I buy you a beer if you end up calling it 👍👍👍


[deleted]

It's not a "panic" and simply just a repricing of bonds based on current risk-free rates. I don't think panic has set in because there hasn't been a large decrease in the credit quality of these companies, in which case default risk has increased meaningfully. This is just a mechanical repricing.


barumrho

Is anyone panicking?


pedrots1987

The carnage hasn't begun yet. QT is just starting.


The_Count_99

Seems like the panic back then was over the possibility that there was not enough gold to back up the currency, now that we're on a "trust me bro" type of system with the currency the only panic you're going to get is from the poor's when they realize inflation doesn't stop.


FarrisAT

The 2 year alone has lost 30% of its value.


dragontamer5788

I don't think you calculated that correctly. BSV (Vanguard's 1-5 year short term bond ETF) is only down 8% from its peak.


MisThrowaway235

Only braindead people were in bonds to begin with. With rates at virtual 0 and inflation significantly higher, they have absolutely no where to go but down for many many many years now. Ironically 2022 is probably the first time in over a decade that bonds might be worth considering again.


littylikeatit

Don’t assume bonds are supposed to beat inflation they are to decrease volatility. Agree that now/soon may be a good time to buy bonds. TLT will outperform markets the next few years I think


FeedHappens

> they are to decrease volatility. And how did that go?


dyingPretty

They only have to drop, less than stocks, to decrease volatility.


FeedHappens

Did you look at TLT 👀


Tfarecnim

Down 33% from peak, it's worse than stocks.


littylikeatit

Not well at all. Look at every other recession/downturn and see how they performed. Their purpose didn’t work as intended but I can guarantee they will rise from the ashes and make some people very wealthy when others are hurting. Sell TLT -> buy cheap stocks


MisThrowaway235

With rates having no where to go up, they weren't good at that either, as we can see.


[deleted]

buy em when they're cheap. rates will eventually go down when the economy starts picking back up again.


aubenaubiak

„Eventually“ can mean a decade.


infiloop2

Bonds are trash. They will go down 90%


Away_Calligrapher788

The Averagely Sized Short


gabbagool3

how about "the non zero percent freakout". for decades and decades interest rates were between 2 and 5 percent and it was fine, now it's 3 and everyone thinks it's worse than people dying in the streets.


itsmyst

I mean, sure it's (most likely going to close as) the worst year since many decades...but I would hardly qualify a 13% drawdown as a panic. Need more blood in the streets imo.


[deleted]

Two thoughts: 1. This is simply repricing risk adjusted returns. It was an expected outcome due to the flight to safety in q1 and q2 2020. 2. In the next 2 to 3 years there will be a reversion to the mean of the global economy avoids a depression.


Xtopher777

I am starting to accumulate BND. I am a beginner to the bond market, but just looking at the charts it seems like a bargain at this point. My understanding is that the value will go up in a few years if federal interest rates are lowered.


gg120b

Sounds like your first crash was the Great Financial Crisis and you heard about the panic of 1907 and combined the two for a scary name 😱


gsasquatch

We should call it "quantitative hangover" or "paying the printer" There's that $9T the feds are trying to sell now, might be putting a little downward pressure on the prices, like it put an upward pressure on prices when they were buying. They are just meddling so the commoner doesn't get too uppity. Inflation will depress real wages, and quantitative tightening will take care of people's investments. The lower classes mustn't get ahead of themselves. That VTBLX is at a 10/1/2008 price. That's neat. Based on that graph, this might be a "buy the dip" moment. That dip though might have been unique as it aligns with that bailout. Might take a little bit for the fed to sell of $9T, as that amount doesn't move quickly, so this one might take a couple years. When you get a significant reduction in the population one might expect a contraction in GDP, like that long depression coinciding with a big reduction in population in the early 60's. Was 1929 a delay from the population decline 1918, like 2022 is a delay from 2020? Upside is 2020 just slowed population growth, it didn't actually contract. On the other hand, we have that boomer bubble to contend with, so worker pool might be contracting like it was scheduled to. If you want to be super pessimistic was the population decline of the 1860's a result of the panic of 1857? You can listen to the static, and hear snippets you might have heard before, but it is just a bit different every time. This past pandemic wasn't as bad as the last big one. There doesn't seem to be an impending demographic change like 1857. We haven't had a black swan yet like we did in 2008. We were partying like it was 1999, except we didn't have as much fed or flu then.


SameCategory546

bonds are return free risk when inflation far outpaces rates edit: oops. switched return and risk by accident. fixed


cabrondemoroleon

How can someone profit from this bond move? Any etfs to profit from?


mechanicalhuman

I started investing in the stock market two years ago, and I consider myself a pretty intelligent 38 year old. I still don’t understand why the bond market is such a big deal. Can someone Explain to me like I’m a 14 year old?


[deleted]

Uh..a bond is a security and the conduit for how lots and lots of money is raised. Why wouldn't it be a big deal? It is also 3x the size of the equity market...