[Mike59]

I sold all my bond funds in September weary of rising interest rates, and have my fixed-income alllocation stuck sitting in cash or money market funds paying nil. With the CPI at 2%+, it feels like a slow leak waiting to cause some major trouble

"Investors burned by bonds still wary of stocks (Reuters)"

"Long-term government bond funds have lost 9.4 percent from mid-September through December 7, according to Morningstar. And the price of the iShares Barclays 20+ Year Treasury Bond ETF is down 11.4 percent."

Are most of you holding your bonds and riding the roller coaster, or market-timing to prevent a catastrophic loss? Any backup plans for coming months? Anyone considering real-return bonds, or is the outlook just as dismal?

 

[Belguy]

I like investment grade corporate bonds as a class of bonds to be invested in at this point.

It doesn't hurt to have a small percentage of your portfolio in real return bonds although the spectre of higher inflation seems to be on the back burner for the moment.

40 percent of my portfolio is in fixed income but that does not match my age. I should be 67 percent in fixed income but I can't bring myself to increase my allocation at this time or in the foreseeable future.

Dividend paying stocks from solid companies with a history of increasing their dividends seems to be the way to go at the moment.

 

[slacker]

I have 10% in XSB (short term bond fund). That was the allocation I started with and I'll stick to it for a while. Since it's short term bond, it won't fall or raise too much either way.

 

[larry81]

I have 10% in XSB (short term bond fund). That was the allocation I started with and I'll stick to it for a while. Since it's short term bond, it won't fall or raise too much either way.

i do exactly like this gentlemen

 

[Assetologist]

Fixed Income

My 'fixed income' is in my profession/work/job, whatever you want to call it.

My investments are in stocks, real estate and private investments.

I am a big believer in the human capital component of an inclusive investment view.

 

[MoneyGal]

Nowhere. No FI component while I still have a mortgage.

 

[Jungle]

I sold all our bonds back in Sept-Oct (I think?) that were in our retirement and emergency fund, except a tiny bit is stuck in non-redeemable GIC.

Made a good profit from the run up, switched into the market rally. Left the emergency fund in a money market/cash. Waiting to buy junk bond etf to hold as emergency fund. Willing to take risk, I want to increase net worth.

 

[Lephturn]

After a basically 30 year bull market for bonds, I'm not holding any bond funds. I short them here and there though - but we are in for a long term drift down in bond prices IMO.

That's different than actual bonds - if you bought individual bonds and made a nice bond ladder, the price changes are not relevant since you just ride out the yield to maturity.

 

[Greyhound86]

Still holding quite a bit of High Yield bonds through etf's and mutuals. Have held them for about 1.5 years on average. I don't expect any more capital appreciation but the yield is still nice. Started selling a bit lately and will probably exit most of them soon.

Don't currently own any other bonds. Own some preferreds with fixed maturity dates (2-4 years) that I consider fixed income.

 

[HaroldCrump]

Are most of you holding your bonds and riding the roller coaster, or market-timing to prevent a catastrophic loss? Any backup plans for coming months?

I sold my bond funds about 3 months ago to lock in the gains (didn't see too much upside to Canadian investment grade bonds).
All my remaining bond holdings are direct Canadian bonds, which I plan to hold till maturity and then rotate.

Anyone considering real-return bonds, or is the outlook just as dismal?

No RRBs for me, never have and probably never will.
Unless we get into a Russian style hyperinflation, I don't see the need to hold RRBs at this stage of my investing.
I also believe that the benchmark CPI the central bank uses to set the discount rates on RRB does not provide me adequate inflation protection.
RRBs are for pension funds and life insurance companies.

 

[Square Root]

Nothing other than my pension

 

[Belguy]

I heard someone ask today on BNN why anyone would be invested in bond funds now when they most assuredly would not make the investor much money going forward and might very well lose a considerable portion of their value for some time to come.

I look after my 90 year old mother's investments and I currently have her money in four different types of bond funds. She has instructed me not to put any of her money in stocks.

Should I cash out of the bond funds and just put the money in a ladder of GIC's?

Also, when I rebalance my own portfolio in January, what should I do with the 40 percent fixed income allocation that I currently have in bond funds?

 

[slacker]

If it's 100% certain that bonds will lose money, is there a way to profit from this? Can one "short" a bond or bond fund?

Why are people so sure that bonds will lose money anyway? By how much, and in what time frame?

 

[plen]

If it's 100% certain that bonds will lose money, is there a way to profit from this? Can one "short" a bond or bond fund?

Why are people so sure that bonds will lose money anyway? By how much, and in what time frame?

I am interested in this question as well. I've heard zero good news about bonds anywhere I look and one wonders if that sleepy portion of my portfolio would be better placed into a 5 year GIC or such.

 

[Mike59]

If it's 100% certain that bonds will lose money, is there a way to profit from this? Can one "short" a bond or bond fund?

Inverse ETFs could fit the bill, but they are wacky...I found this an interesting read:

"Claymore's (Inverse) Bond ETF comes up short" (Canadian Couch Potato)

 

[Belguy]

This is a way over my head, but a bond 'expert' was on BNN today and he was recommending going long on some bonds like a 25 year corporate bond and then also going short on a Government of Canada bond at the same time. I failed to understand what this accomplished but maybe someone else here could explain the concept if I have explained it properly.

This whole bond situation going into a period of rising interest rates has got me baffled. Is it better to just adjust all bond holdings to shorter periods or to get out of bonds altogether and go some different route? This is one time when I could use the help of an advisor!!!

For those of you who have advisors, what are they recommending that you do with the fixed income portion of your portfolio?

If CC cares to tell us, it would be interesting to hear his thoughts on the matter. Where is he putting his fixed income investments with interest rates set to rise?

 

[atrp2biz]

This is a way over my head, but a bond 'expert' was on BNN today and he was recommending going long on some bonds like a 25 year corporate bond and then also going short on a Government of Canada bond at the same time. I failed to understand what this accomplished but maybe someone else here could explain the concept if I have explained it properly.

This whole bond situation going into a period of rising interest rates has got me baffled. Is it better to just adjust all bond holdings to shorter periods or to get out of bonds altogether and go some different route? This is one time when I could use the help of an advisor!!!

For those of you who have advisors, what are they recommending that you do with the fixed income portion of your portfolio?

If CC cares to tell us, it would be interesting to hear his thoughts on the matter. Where is he putting his fixed income investments with interest rates set to rise?

This strategy would work if credit spreads converge.

During a financial crisis, there is typically a flight-to-quality (I use the term quality loosely here!) which results in higher rated bonds outperforming their lower rated counterparts. This occurs because there is a greater risk of default in the lower rated bonds.

When economic conditions are expected to improve, a possible strategy is to be long lower rated bonds and short higher rated bonds with the hopes of yields tightening (or converging). The analyst you mentioned was probably referring to a strategy like this.

Personally, high-yield bonds represent approximately half of my fixed income portfolio. I have a relatively low fixed income proportion in my portfolio (20%) which I am comfortable with. I am 31 years old.

 

[hboy43]

Hi:

No FI here. Especially not now when bank commons yield ~ 4% and FI yields almost nothing.

My concession to current uncertainties is that leverage is down however to about 8% of net worth.

My goal is not to be in the middle financially, but rather to be either wealthy or poor. In this context, my approach has rationality. Plus my wife is a teacher, so the pension will roll in one day.

I may reconsider my FI policy in 15 or 20 years when I am in my 60s.

Cheers

hboy43

 

[Belguy]

I am no computer expert but, every once in a while, I run into a problem where I am not allowed to post a response. I have been told that it has something to do with my browser. My 'Fundlist' at Globeinvestor also gets whiped out in the process. It is very frustrating but I don't know how to fix it. Anyway, I am able to post on this thread but not on some others. Strange!!

Let me ask this question of some of you younger investors out there. If you were an older investor and already retired and facing the future rising interest rate environment, how much of your portfolio might you have in fixed income at this point in time and what specific investments would you choose for your fixed income allocation?

It is all well and good for a 30 year old to have 80 percent of his portfolio in equities but what if you were approaching 70?

 

[Lephturn]

It is all well and good for a 30 year old to have 80 percent of his portfolio in equities but what if you were approaching 70?

If you do not already have a bond ladder built already, I wouldn't be buying bonds with rates this low. If I had some bonds maturing I wouldn't be buying anything long term right now.

I'd be doing mainly the same thing I'm doing now in my retirement account - dividend growth stocks protected with options and generating additional income where possible with options to pay for the protection. There is no way I'm going naked in the markets - I'm protecting all of my money.

But that's me - you need the inclination to learn about options to use those effectively, and it will take some time to learn what you need.

Bond yields are way down and we have already seen the end of a 20 year bull market in bond prices - so bond funds of any sort are going to get killed in the next few years overall as yields rise and bond prices fall. We could well have a 20 year bear market in bonds - and that means stay the hell away from bond funds.

So if you don't already have a bond ladder that was built years ago - well I think dividend growth with protection is about your only solution. That is provided you don't already have a big enough nest egg. If you have more than enough money now you can always buy a big annuity that will pay out a fixed amount until you die. If you are healthy and have enough funds that is probably the safest option.