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We have held Vanguard GNMA and Total Bond Index funds for many years now. The past week or so we notice the price dropping continuously. Today the GNMA dropped 8 and the Total Bond Index dropped 7.
Does anyone know what is going on here? We are seniors and all of this is quite confusing to us. Should we get rid of these two before they go down any lower? [/SIZE]
We have looked at the historical prices and this looks like the lowest they have ever been. We phoned Vanguard and the girl said she couldn't give an explanation.
Some IRA are in the GNMA!
Thanks for any help.
bond investors buying bonds today want to be compensated a little better by higher rates and so existing bonds have been bid lower by them driving down share prices.
for 30 years bonds and bond funds have been in a bull market and most bond investors alive have never seen a bear bond market so they forget there is risk in bonds too.
no one knows where longer term rates are headed as the fed only controls short term rates not bond rates.
you could see about a 5- 7% drop for every 1% rise in rates.
Last edited by mathjak107; 05-29-2013 at 02:17 AM..
bond investors buying bonds today want to be compensated a little better by higher rates and so existing bonds have been bid lower by them driving down share prices.
for 30 years bonds and bond funds have been in a bull market and most bond investors alive have never seen a bear bond market so they forget there is risk in bonds too.
no one knows where longer term rates are headed as the fed only controls short term rates not bond rates.
you could see about a 5- 7% drop for every 1% rise in rates.
My friend it may be worse than that. Junk bond funds are tanking big time and may soar down within weeks. The cash flow out of junk funds is considerable and fund managers are having to buy the shares being cashed in multiplying the problem. The financial show discussions are becoming one common message and it isn't pretty for junk especially. Only time will tell but this kid is about to change a few things. As Larry Fink made clear today the issue is NOT with individually held bonds kept to maturity. Others have noted the biggest threat may be redemptions and not interest rate increases. There are a lot of bonds held in funds and if buyers become in short supply you know what that does at 4:00 when the redemptions get calculated for the day.
when rates rise considerably it is because inflation is rising too. anyone who thinks they are better off holding an individual bond long term rather than a bond fund is mistaken.
being down 25% in value on the fund or down 25% in purchasing power when your bond matures is the same damage.
junk bonds trade like stocks so they are not as interest rate sensitive. owning junk bonds does have all the risks of equities. they respond to credit risk which makes them not just interest rate sensitive.
high quality bonds will not get hit hard with redemption requests unless rates and inflation rise . the only reason high quality bond funds will take a hit is if the underlying bonds fall from rates moving higher.
Last edited by mathjak107; 05-29-2013 at 10:54 AM..
when rates rise considerably it is because inflation is rising too. anyone who thinks they are better off holding an individual bond long term rather than a bond fund is mistaken.
being down 25% in value on the fund or down 25% in purchasing power when your bond matures is the same damage.
junk bonds trade like stocks so they are not as interest rate sensitive. owning junk bonds does have all the risks of equities. they respond to credit risk which makes them not just interest rate sensitive.
high quality bonds will not get hit hard with redemption requests unless rates and inflation rise . the only reason high quality bond funds will take a hit is if the underlying bonds fall from rates moving higher.
Or if bond fund many of whom are seniors or close to decide to listen and jump over to the equity market or cash. The recent data isn't good. Whether it is trend or not is to be determined. The OP and her OP post may be playing out in living rooms across the country and last few lines say it all. Some would say it is and when those end of second quarter statements come out. Much of the discussion has not been about serious investors and how they will react but how Mom and Pops across the country would react who got burned in the meltdown and wanted safety and yields and thought junk bonds were it. There had been a surge in the purchase of and companies were taking advantage of cheap money and now if the funds get caught holding the bonds and or having to try to liquid whatever assets they may have to meet the demands of redemption it could get real ugly for the last ones out is the fear of those not wanting to be the last ones out. Only time will tell it seems the OP may be wanting to hedge their bets.
We have held Vanguard GNMA and Total Bond Index funds for many years now. The past week or so we notice the price dropping continuously. Today the GNMA dropped 8 and the Total Bond Index dropped 7.
Does anyone know what is going on here? We are seniors and all of this is quite confusing to us. Should we get rid of these two before they go down any lower? [/SIZE]
We have looked at the historical prices and this looks like the lowest they have ever been. We phoned Vanguard and the girl said she couldn't give an explanation.
Some IRA are in the GNMA!
Thanks for any help.
Per you OP question. Hopefully you have some food to think about and decide about YOUR financial well being. I understand you are seniors with an immediate time horizon and there has been much discussion on the airwaves about how folks like you are impacted. Best of luck to you.
NEW YORK, May 24 (Reuters) - High-yield bond funds suffered
a massive round of net redemptions in the week ended May 23,
tipping the taxable bond fund sector to net sales for the first
time since mid-December, data from Thomson Reuters Lipper showed
on Thursday. Taxable bond funds, including passively managed exchange
traded funds (ETFs), saw net outflows of $1.65 billion, breaking
an inflow streak that had stretched to 22 weeks.
Equity funds posted a net outflow of $4.6 billion in the
latest week during which the Standard & Poor's 500 - the
U.S. benchmark stock index - booked a loss of 0.45 percent. Excluding ETFs, which are anecdotally considered to
represent institutional investor behavior, equity funds had net
outflows of $2.44 billion, indicating retail investors were also
big sellers.
Any disagreement with the above should be directed to Reuters. As indicated in a prior post this was last weeks data. Only time will tell about this week. The use of the word massive is from Reuters and of course is relative for any individual poster. This is the source of the on air discussions I referenced previously. No more no less. The OP may want to consider the above Reuters news in evaluating their finances, others are being encouraged to and what they do will be up to them.
Last edited by TuborgP; 05-29-2013 at 01:27 PM..
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