US Bond Fund- run or hold?

[Venus_Top]

What’s the prospect of bonds doing well ?

By right FOMC cut rates is good for bonds, but ETF like TLT keep decreasing in value

 

[BBCWatcher]

What’s the prospect of bonds doing well ?

Over the long term bonds should roughly pace inflation or do slightly better. See below.

By right FOMC cut rates is good for bonds, but ETF like TLT keep decreasing in value

Wow, OK, lots of problems here:

• TLT is U.S. estate taxable. There are comparable U.S. Treasury funds (Irish domiciled, London traded) that are not U.S. estate taxable.
• TLT is a bet on a single currency: U.S. dollars. Unless you have some long-term future spending objective in U.S. dollars (for example, retirement in Saudi Arabia, a country with a currency firmly pegged to U.S. dollars) this is a strange bet.
• TLT holds only U.S. Treasuries, the safest available U.S. dollar bonds. Long-term bond fund investors are generally better off in an investment grade corporate bond fund. It’s basically the difference between pacing U.S. dollar inflation and doing slightly better than U.S. dollar inflation.
• TLT isn’t really down in U.S. dollar terms. It has basically moved sideways over the past year. It’s higher than a year ago, for example. That’s because it’s a bet on the long maturity side of U.S. Treasuries.
• A better time for these epiphanies (if you substantially share these epiphanies) would’ve been when TLT was at or near a high in Singapore dollar terms.

So…do you have the right investment strategy holding TLT? If no, then you’ll probably want to fix that within a “reasonable” period of time. If yes, then TLT’s price drop (in Singapore dollar terms at least) invites you to buy more, although I’d swap TLT for the Irish domiciled equivalent if you’re concerned about U.S. estate taxability (and not a U.S. person).

Note that investment strategies don’t always work, but they’re logical, thoughtful, and don’t change often or at all. An investment strategy might change if for example your planned country of retirement changes.

 

[fr33d0m]

Fed fund rate has large impact on short term rate. TLT is 20+ year treasury.

 

[Shiny Things]

What’s the prospect of bonds doing well ?

By right FOMC cut rates is good for bonds, but ETF like TLT keep decreasing in value

So I don't know why this dude got banned, but this question has been coming up a lot (usually in the form of "the Fed cut rates, so why aren't mortgage rates coming down?", which is basically the same question) - so it's worth an answer. (Separately, BBCW is right: if you're posting on this board, you probably shouldn't own TLT in the first place!)

The answer is that Fed Funds (the rate the Fed controls) and bond yields are connected, but they're not the same thing. Fed Funds is the interest rate for overnight loans; but as BBCW and Fr33 pointed out above, TLT owns bonds that mature in twenty to thirty years, which is a lot of overnights.

And generally, the way to think about (government) bond yields is that long-dated bonds - like 20s and 30s - reflect not just the current level of Fed Funds, but also the forecast path of the current hiking or cutting cycle, and also where people think long-term economic growth is going to land. (stronger economy = more growth = higher yields; this is why Japanese long bonds traded at infinitesimally low yields throughout the nineties and 2000s).

Now, for this next paragraph, remember we're talking about the US here, not about Singapore. Different countries; different economies.

The second point is the key here—the forecast path of the current hiking or cutting cycle. Before the September Fed meeting, the market was all bulled up expecting a long, aggressive series of interest rate cuts; the market was pricing for cuts all the way down below 2% in Fed Funds. After that September meeting, US economic data started coming in stronger (strong October NFP, slightly hotter inflation), and the market changed its mind: folks realized that the Fed would probably not cut as aggressively, or for as long, as they were originally expecting.

And that's why we got this confusing price action in US bond funds like TLT. The Fed cut rates, yes; but they're probably not going to cut as fast or as hard as we thought they would. That means higher yields for bonds, and lower prices, which is why US bond funds have weakened a bit.

(The question is whether it will go any further. You could make a case that current yields—bond markets are closed today, but US 30s closed on Friday at 4.41%—are pretty decent: 50bps higher than a month ago, and 200bps above inflation, is a reasonable payoff by most metrics.)

 

[DevilPlate]

So I don't know why this dude got banned, but this question has been coming up a lot (usually in the form of "the Fed cut rates, so why aren't mortgage rates coming down?", which is basically the same question) - so it's worth an answer. (Separately, BBCW is right: if you're posting on this board, you probably shouldn't own TLT in the first place!)

The answer is that Fed Funds (the rate the Fed controls) and bond yields are connected, but they're not the same thing. Fed Funds is the interest rate for overnight loans; but as BBCW and Fr33 pointed out above, TLT owns bonds that mature in twenty to thirty years, which is a lot of overnights.

And generally, the way to think about (government) bond yields is that long-dated bonds - like 20s and 30s - reflect not just the current level of Fed Funds, but also the forecast path of the current hiking or cutting cycle, and also where people think long-term economic growth is going to land. (stronger economy = more growth = higher yields; this is why Japanese long bonds traded at infinitesimally low yields throughout the nineties and 2000s).

Now, for this next paragraph, remember we're talking about the US here, not about Singapore. Different countries; different economies.

The second point is the key here—the forecast path of the current hiking or cutting cycle. Before the September Fed meeting, the market was all bulled up expecting a long, aggressive series of interest rate cuts; the market was pricing for cuts all the way down below 2% in Fed Funds. After that September meeting, US economic data started coming in stronger (strong October NFP, slightly hotter inflation), and the market changed its mind: folks realized that the Fed would probably not cut as aggressively, or for as long, as they were originally expecting.

And that's why we got this confusing price action in US bond funds like TLT. The Fed cut rates, yes; but they're probably not going to cut as fast or as hard as we thought they would. That means higher yields for bonds, and lower prices, which is why US bond funds have weakened a bit.

(The question is whether it will go any further. You could make a case that current yields—bond markets are closed today, but US 30s closed on Friday at 4.41%—are pretty decent: 50bps higher than a month ago, and 200bps above inflation, is a reasonable payoff by most metrics.)

Yr narrative not that accurate.

prior to Sep 18, market priced in 25bps fed rate cut and TLT bond price keep rising.
And then Fed give a surprise 50bps cut and yet TLT bond price starts to drop.

Yes, u can say whatever hindsight WS mainstream narrative which they want u to believe whahaha

 

[DevilPlate]

Whatever econs u study in sch generally don’t apply in the stock/bond market in the short term.

Sometimes good news is good news and then sometimes good news is bad news.