Falling yields

Discussion of the Bond portion of the Permanent Portfolio

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dockinGA
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Re: Falling yields

Post by dockinGA » Fri Jun 25, 2021 10:32 am

SomeDude wrote:
Fri Jun 25, 2021 8:36 am
doodle wrote:
Thu Jun 24, 2021 11:20 pm
Main reasons I'm not interested in having kids:

Expensive
Too much responsibility
Future too uncertain
As someone who had a baby girl last year and has a boy due in December......it is hard but well well worth it.

Your capacity for love will grow massively and they will bring joy into your life.

Depending on your income they are not that expensive. The tax deductions and credits at my income level for getting a wife and two kids is probably $20k or more.

Having a family to care for you when you're older is a big plus too.

And i go out drinking and philandering a LOT less.
What will you say when your children move away to pursue their career? Will you be happy if they don't move back to help you in your old age? Will you be happy if they do move back, knowing that they may have uprooted their own career and family to do so? \

I'm 39, no kids. I love kids, but apart from a very short time period before I got married, I've never felt any urge whatsoever to have children of my own. If I'd had kids, I suppose I would've enjoyed it, but I've also enjoyed aspects of not having children. It's just not something I feel the urge to do, so I won't upset the applecart. My wife feels the same way, and I know several other couples, usually younger than us, that feel the same way. In most cases, they're far more 'anti-kid' than I am. It's best to say that I'm neutral on children.

I've seen people deal with losses of children at early ages, or other significant medical issues. On the outside, they handled it as well as possible, but I shudder to think of what they went through on the inside. I know that for me, dealing with something like that with a child would be life-wrecking stuff. Absolutely devastating. Slightly less devastating would be an older child ruining their life with drugs or alcohol. Anyway, just my 2 cents worth. Kids have gone from being a requirement throughout most of human history, to something of a luxury.
vincent_c
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Re: Falling yields

Post by vincent_c » Fri Jun 25, 2021 11:39 am

If someone would have had kids given an infinite amount of money then they are losing out and just lying to themselves that it’s actually what they wanted to not have kids. Probably some kind of psychological defense mechanism to feel better about one’s situation.

If it’s a choice that had nothing to do with money at all then that’s their choice that should be respected.
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Tortoise
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Re: Falling yields

Post by Tortoise » Fri Jun 25, 2021 12:43 pm

There's a pretty noticeable correlation between fertility rate and participation in organized religion. For example, devout Muslim populations around the world are among the fastest-growing, and Latino immigrants in the US (the majority of whom attend church weekly) have much higher birth rates than the general population.

The gradual drop in fertility rate is multifactorial, but clearly organized religion is one of the big factors.

In traditional organized religions like Islam, Christianity, and Orthodox Judaism, men and women are generally expected to get married, and women are generally expected to have and raise children rather than be career-driven. They don't have to do it, but social pressure nudges them in that direction.

Regular church attendance has been steadily dropping in the US over the past few generations, so predictably the fertility rate has been steadily dropping as well. Women in the US nowadays prefer to build careers rather than families.
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Kriegsspiel
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Re: Falling yields

Post by Kriegsspiel » Fri Jun 25, 2021 6:22 pm

I wonder what effect the lack of new frontiers plays? Pioneers breed like rabbits, which might explain the high fertility of some religious groups (Muslims in Europe, Mexicans in America, Mormons, Amish, Israeli Jews). A very recommended book on the topic: The Great Frontier by Webb.
Cato suggested that women would live long, healthy lives if they washed their genitals in the urine of a cabbage eater. He was listened to on health matters, since in an age of short lives and high infant mortality he lived to be over 80 and claimed to have fathered 28 sons, all of which he credited to eating cabbage with salt and vinegar.
- Kurlansky, Salt
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Re: Falling yields

Post by perfect_simulation » Sat Jun 26, 2021 12:43 pm

Tortoise wrote:
Fri Jun 25, 2021 12:43 pm
Women in the US nowadays prefer to build careers rather than families.
So deflation? The end is nigh.
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doodle
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Re: Falling yields

Post by doodle » Thu Jul 08, 2021 6:14 am

I guess that inflation fear mania really signaled a buying opportunity for long bonds. What say all the interest rate vigilantes now?
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Re: Falling yields

Post by vincent_c » Thu Jul 08, 2021 8:14 am

It’s pretty bad because psychologically they may have boxed themselves in and will have to deal with the possibility of buying back into long bonds at the worse possible time, which is when they finally lose all conviction in their bearish position.

Either way they have already lost because of the stress that must be felt. I can’t imagine the level of stress these people will have if this continues and they begin to realize they messed up when they couldn’t even tolerate the stress level of the PP during a drawdown.

Objectively though, I’d imagine the markets are overshooting the bond correction somewhat in the short term. The volatility I think is due to the speculation and leverage in the markets, the question is will the unwind be orderly?
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I Shrugged
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Re: Falling yields

Post by I Shrugged » Thu Jul 08, 2021 6:12 pm

Man, I don't know. I keep running into business people and businesses that are desperate for workers. And big wage increases. I'll spare you the anecdotes, but they are everywhere.

My prediction, inflation soon and bigger than you expect. So will that be stagflation? Seems like a plausible scenario. But for how long, that's a bigger question. I also buy into the idea that this is still a deflationary world.
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doodle
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Re: Falling yields

Post by doodle » Thu Jul 08, 2021 9:35 pm

I Shrugged wrote:
Thu Jul 08, 2021 6:12 pm
Man, I don't know. I keep running into business people and businesses that are desperate for workers. And big wage increases. I'll spare you the anecdotes, but they are everywhere.

My prediction, inflation soon and bigger than you expect. So will that be stagflation? Seems like a plausible scenario. But for how long, that's a bigger question. I also buy into the idea that this is still a deflationary world.
That's something else that doesn't seem to add up to me. Firstly, because aren't we supposed to be in the middle of an AI revolution that is reducing demand for workers? Second, unless workers have figured out a way to collectively organize to demand higher wages, I'm not sure how many people are going to be able to hold out very long once enhanced unemployment ends...at which time they will be back to competing with fellow workers in a global marketplace.
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Re: Falling yields

Post by Lorddoskias123 » Fri Jul 09, 2021 8:12 am

I Shrugged wrote:
Thu Jul 08, 2021 6:12 pm
Man, I don't know. I keep running into business people and businesses that are desperate for workers. And big wage increases. I'll spare you the anecdotes, but they are everywhere.

My prediction, inflation soon and bigger than you expect. So will that be stagflation? Seems like a plausible scenario. But for how long, that's a bigger question. I also buy into the idea that this is still a deflationary world.
This is my thinking as well.
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Re: Falling yields

Post by vincent_c » Fri Jul 09, 2021 10:16 am

I think it's fine and even necessary to evaluate what events happened to cause a particular trend in a market but the purpose of doing so isn't to have clarity regarding what the future will bring. The purpose really should be to make sure that the asset that should have responded to those events have done so.

I think what throws some people off when they are confused about the markets is that they think an asset should have performed a certain way (ie. bonds are good in deflation) but if they experience what they believe to be inflation and bonds went up then they think something is wrong with that, but it could just be something wrong with their assessment of what happened or their understanding of how the markets behave.

Perhaps what really matters is only what the markets think has happened or will happen so given that it's a possibility that the markets behave somewhat disconnected with our personal experience. I mean, we only feel what's personal to us and what we are being told by certain data or by what the media tell us. The markets are dealing with the aggregate inputs of all participants so the inputs are different so it shouldn't be a surprise that they can react different to our own expectations.

Given that there is a double uncertainty here, we don't know what the future will bring even according to our own experience and we also don't know how the markets will act according to what the future information the markets receive, it seems like this is the reason why one has to be agnostic without relying on chance. Funnily enough, it is only when it seems clear in hindsight (our personal experience matches that of the market's) when investors feel like they could have avoided it by not being a certain asset when it was clearly going to underperform.
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Re: Falling yields

Post by drumminj » Fri Jul 09, 2021 5:37 pm

vincent_c wrote:
Fri Jul 09, 2021 10:16 am
Perhaps what really matters is only what the markets think has happened or will happen so given that it's a possibility that the markets behave somewhat disconnected with our personal experience.
I think there's an assumption in the above statement that there is a free market, with rational investors reacting to stimulus, rather than captured markets which are being manipulated by large actors. For example, if the fed/other central banks can print money and exert more influence than the independent actors, then I don't believe one can try to read any of this/draw any conclusions, as it's not what the markets think, but more about what these large, motivated actors are trying to accomplish.

It's unclear to me right now if there are honest market signals out there, or a distorted set of signals that can't be relied upon in the same way one used to be able to.
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Re: Falling yields

Post by vincent_c » Fri Jul 09, 2021 6:53 pm

I don't think there is any assumption that there isn't a manipulated market. We can explore this though.

Large actors are still players in that market and just because their trades can move the market or they can print money doesn't really change anything. There are assumptions of course, like if central banks print money and stimulate credit then we pull forward any organic growth there could have been and this could mean a more painful deleveraging later.

The markets are the combined actions of the players so just because there are large motivated actors involved just means that that is part of the market.
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Re: Falling yields

Post by pp4me » Fri Jul 16, 2021 11:54 am

Speaking of Falling Yields, I thought this snapshot of my IRA this morning was interesting. This is why I prefer holding my own bonds to buying shares. Fortunately, the amount I had in TLT was pretty small so I only lost $23.

Also, do you think I should sell that first batch of bonds when it goes < 20 years to maturity in November?

Image
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Re: Falling yields

Post by vincent_c » Fri Jul 16, 2021 12:19 pm

It looks like if you have the ability to buy your own US treasuries then you can get exposure to greater duration. I think TLT and treasury futures provide an easy way to have constant duration. You're paying for this by accepting the cheapest to deliver with the futures and although TLT should be holding the treasuries, since it tracks the futures so well I'm curious how things work under the hood. Does it just so happen that the cost of the basis trade is the same as the MER for the ETF?

I know it is easy to ignore how well the DIY treasuries track TLT. I used to buy both EDV and TLT and the duration difference absolutely makes a difference to how volatile the bonds are even between 17 years and something like 25 years. The added complexity makes me think the DIY route is definitely not for most people but I am curious what someone who actually is doing it thinks.
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Re: Falling yields

Post by Tortoise » Fri Jul 16, 2021 12:46 pm

pp4me wrote:
Fri Jul 16, 2021 11:54 am
Speaking of Falling Yields, I thought this snapshot of my IRA this morning was interesting. This is why I prefer holding my own bonds to buying shares. Fortunately, the amount I had in TLT was pretty small so I only lost $23.

Also, do you think I should sell that first batch of bonds when it goes < 20 years to maturity in November?

Image
I suspect the apparent discrepancy here is that your IRA brokerage window was showing the current TLT price but delayed bond prices. The displayed bond prices were probably from market close yesterday (TLT's price rose by over 1% yesterday).

It's annoying that the brokerage windows often display delayed prices from their bond desk, but it just seems to be how they do things. I noticed a similar discrepancy in one of my brokerage windows several years ago.

If you account for the delay in the displayed prices from the bond desk, I think you'll find that your directly held LTTs move roughly in line with TLT as they should.
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Re: Falling yields

Post by Mark Leavy » Fri Jul 16, 2021 12:52 pm

Tortoise wrote:
Fri Jul 16, 2021 12:46 pm
I suspect the apparent discrepancy here is that your IRA brokerage window was showing the current TLT price but delayed bond prices. The displayed bond prices were probably from market close yesterday (TLT's price rose by over 1% yesterday).
This was exactly my experience when I held individual bonds. Both the vanguard prices and the WSJ published prices were a snapshot of the previous day's prices. Either closing or around 12:30pm (not sure).
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Re: Falling yields

Post by pp4me » Fri Jul 16, 2021 1:08 pm

Mark Leavy wrote:
Fri Jul 16, 2021 12:52 pm
Tortoise wrote:
Fri Jul 16, 2021 12:46 pm
I suspect the apparent discrepancy here is that your IRA brokerage window was showing the current TLT price but delayed bond prices. The displayed bond prices were probably from market close yesterday (TLT's price rose by over 1% yesterday).
This was exactly my experience when I held individual bonds. Both the vanguard prices and the WSJ published prices were a snapshot of the previous day's prices. Either closing or around 12:30pm (not sure).
I suspected something like that too but the TLT is also way down overall compared to the individual bonds - like +10% compared to +21, +32, and +16 respectively.

And I don't even know how much the coupon payments factor into those rates of return.

But more generally speaking I have no regrets about holding any of those long bonds.
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Re: Falling yields

Post by Tortoise » Fri Jul 16, 2021 2:14 pm

The weighted average maturity of TLT is currently about 26 years, so its price should be moving roughly in line with LTTs with 26-year maturity, right?

If so, and if that's not happening, then it seems like we have a bit of a Scooby Doo mystery on our hands.
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Re: Falling yields

Post by pp4me » Fri Jul 16, 2021 2:35 pm

Tortoise wrote:
Fri Jul 16, 2021 2:14 pm
The weighted average maturity of TLT is currently about 26 years, so its price should be moving roughly in line with LTTs with 26-year maturity, right?

If so, and if that's not happening, then it seems like we have a bit of a Scooby Doo mystery on our hands.
Even if there is a good explanation for the mystery I like seeing those batches of bonds outdoing TLT from time to time. Also like seeing the coupon payments, and not paying the TLT fee. Kind of like physical gold vs an ETF makes you feel.
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Re: Falling yields

Post by Tortoise » Fri Jul 16, 2021 2:44 pm

Agreed. Ever since I learned how easy it is to buy individual Treasuries, I’ve been doing that in most of my accounts. Similar performance as TLT, but lower counterparty risk and no expense ratio. Basically a free lunch.
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Re: Falling yields

Post by vincent_c » Fri Jul 16, 2021 7:36 pm

Tortoise wrote:
Fri Jul 16, 2021 2:14 pm
The weighted average maturity of TLT is currently about 26 years, so its price should be moving roughly in line with LTTs with 26-year maturity, right?

If so, and if that's not happening, then it seems like we have a bit of a Scooby Doo mystery on our hands.
Shouldn’t we be looking at effective duration?

Does anyone know if the weighted average maturity equals the maturity of an individual bond, whether it will have the same effective duration?
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Re: Falling yields

Post by vnatale » Sat Jul 17, 2021 9:45 am

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