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Every time the fed has raised rates 1% or more in a year the last 30 years ,bonds have gone up in value with one exception 1993 when bond values fell.
I think you would be betting against the house if you bet not. Betting the flier in investing and thinking this time is different is rarely a good idea.
It is always better to place your bets on what was ,what is and what stands a reasonable chance of continuing.
Even the recent dip saw rates start to fall when stocks just hinted at faltering. I have no reason to think this time is any different at this stage. I believe these inflation fears are going to be found to be over blown and with world wide rates still so low our bond rates will go down not up
Last edited by mathjak107; 04-19-2018 at 05:42 PM..
Every time the fed has raised rates 1% or more in a year the last 30 years ,bonds have gone up in value with one exception 1993 when bond values fell.
I guess you're looking at calendar years?
If you bring up the FRED charts you'll see there were only four periods of Federal Reserve tightening going back to the mid 1980s, not counting the current one. In three of the four periods, the yield on the ten-year note was higher at the end of the tightening than at the beginning... i.e., bond price dropped. You might not see this by looking at calendar years though.
Going by calander year there was only one time bonds fell and that was 1994. We have had 6 times the fed went more than 1%.
Like with stocks we can rip out any time frames to find a year over year stocks were down but yet on a calander year finished up. But using the benchmark of jan to dec we show just one losing year when short term rates were pushed higher than 1% in a year
Remember we are talking a raise of more than 1% in a year.
1989 saw short term rares raised 1.64% bonds were up 12.74% total return
1994 rates up 1.19% bonds minus 1.93%
1995 rates up 1.62 bonds up 15.30%
2000 rates up 1.27 bonds up 10.10
2005 rates up 1.87 bonds up 1.57%
2006 rates up 1.75 bonds up 4.08%
So you can see very aggressive tightning of over 1% has been liked by the bond markets who fear inflation
Last edited by mathjak107; 04-20-2018 at 04:04 AM..
Going by calander year there was only one time bonds fell and that was 1994. We have had 6 times the fed went more than 1%.
Like with stocks we can rip out any time frames to find a year over year stocks were down but yet on a calander year finished up. But using the benchmark of jan to dec we show just one losing year when short term rates were pushed higher than 1% in a year
Remember we are talking a raise of more than 1% in a year.
1989 saw short term rares raised 1.64% bonds were up 12.74% total return
1994 rates up 1.19% bonds minus 1.93%
1995 rates up 1.62 bonds up 15.30%
2000 rates up 1.27 bonds up 10.10
2005 rates up 1.87 bonds up 1.57%
2006 rates up 1.75 bonds up 4.08%
So you can see very aggressive tightning of over 1% has been liked by the bond markets who fear inflation
Given the context of the discussion, it makes more sense to look at the rate increase, and corresponding bond price decrease, over the period of tightening.
What makes sense is bonds once you get away from the short term stuff is driiven not by the feds moves but investor fear,greed and perception of inflation.
If it is a stock market tumble that slows consumer spending or anti inflationary pressures falling from the fed iincreasing short term rates odds are pretty good investors will be likely bidding bond yields down.
I would not want to bet that bond rates will continue to go up and up despite a market that tumbles or a fed that gets heavy on the increases.
I would not bet the ranch on intermediate or long term bonds but i wouldn't use cd's as a proxy for them either to heavily. I would keep the bonds balanced from very short to intermediate.
If stocks tumble total returns stand a chance of at least adding some gains to the total return.
Betting to heavy on anyone partular outcome is not a good idea because odds are ,noooooooo despite what we think we don 't have it figured out
Last edited by mathjak107; 04-20-2018 at 07:05 AM..
Reason: s
What makes sence is bonds once you get away from the short term stuff is driiven not by the feds moves but investor fear,greed and perception of inflation.
If it is a stock market tumble that slows consumer spending or anti inflationary pressures falling from the fed iincreasing short term rates odds are pretty good investors will be likely bidding bond yields down.
I would not want to bet that bond rates will continue to go up and up despite a market that tumbles or a fed that gets heavy on the increases.
AND I would not want to bet that FED tightening/rising rates won't have an adverse impact on bond prices.
Then don't bet.. easy answer . I never said it can't happen . One just should not plan to heavy one way or another. Not hiding out in cd's and not going out to far in bonds with all your fixed income money..
Ladder it out .my opinion is i would not just ladder cd's ,l would ladder some bonds as well , not for the interest but for additional gains if you are wrong about when markets tumble.
If one is nervous about these times one should not try to rule out things going wrong , but rather allow for them to go wrong without betting to heavy on a particular outcome
Then don't .. easy answer . I never said it can't happen . You just should not plan to heavy one way or another. Not hiding out in cd's and not going out to far in bonds with all your fixed income money.
Many people, smarter than me, are advocating some sort of fixed instrument in lieu of bonds right now, whether it be stable value funds, short-intermediate-term CDs.
You mean like those wizards and experts that told us to avoid stocks since 2008 off and on .
Hey avoid anything you like if you believe it . But i think those that stay diversified without reducing stock allocations very low and hiding in cd's ,once again will do better than trying to follow these all or nothing financial wizards who think they can time things.
There is a good long history that says retirees have done just fine basically doing nothing but allocating 40--60% equities and the rest to bonds and a bit of spending cash
What you do is up to you since you stated you are not living off your portfolio but i certainly would never recommend any retiree living off their portfolio to follow what you do as you are a different case.
Most retirees need to utilize what they do have, to develop as an efficent income as they can while putting the highest odds of success on their side . That includes not going to low of an allocation to stocks and not building up the needed cushion for unexpected higher inflation down the road because they thought we were headed down and tried to outsmart the markets or reduced so low in equities or bonds that it hurt their long term sustainability
Last edited by mathjak107; 04-20-2018 at 07:09 AM..
You mean like those wizards and experts that told us to avoid stocks since 2008 off and on .
Hey avoid anything you like if you believe it . But i think those that stay diversified without reducing stock allocations very low and hiding in cd's ,once again will do better than trying to follow these all or nothing financial wizards who think they can time things.
There is a good long history that says retirees have done just fine basically doing nothing but allocating 40--60% equities and the rest to bonds and a bit of spending cash
What you do is up to you since you stated you are not living off your portfolio but i certainly would never recommend any retiree living off their portfolio to follow what you do as you are a different case.
Most retirees need to utilize what they do have, to develop as an efficent income as they can while putting the highest odds of success on their side . That includes not going to low of an allocation to stocks and not building up the needed cushion for unexpected higher inflation down the road because they thought we were headed down and tried to outsmart the markets or reduced so low in equities or bonds that it hurt their long term sustainability
Yields continue to rise this morning..
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