Author Topic: Bonds and Interest Rate Risk  (Read 3336 times)

AdrianC

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Bonds and Interest Rate Risk
« on: June 08, 2016, 02:46:22 PM »
Bill Gross knows a thing or two about bonds. He runs the Janus Global Unconstrained Bond Fund:

https://www.janus.com/retail/funds/janus-global-unconstrained-bond-fund/holdings-and-details

Effective Duration (years) 1.13
Weighted Average Maturity (years) 1.53

For comparison:
Vanguard Total Bond Market ETF (BND)
Average duration (years)  5.8
Average effective maturity (years) 8.0

dandarc

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Re: Bonds and Interest Rate Risk
« Reply #1 on: June 08, 2016, 02:57:45 PM »
And he only charges 15 times as much as Vanguard for his expert advice.

Or if you're sold on the "Interest rates are low - must go shorter term", why not use VBIRX instead?  Not quite as short-term as the janus fund, but at less than 1/10 the price, maybe good enough?

acroy

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Re: Bonds and Interest Rate Risk
« Reply #2 on: June 08, 2016, 03:06:10 PM »
My 2c: Quality Corporate debt FTW.
Better yield, and better managed than the government!
Loan your money to a productive organization paying people, making things, doing things (corporations)
Instead of financing political shenanigans (governments) with no hope of repayment except via issuance of new debt to pay the old....

AdrianC

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Re: Bonds and Interest Rate Risk
« Reply #3 on: June 08, 2016, 04:19:32 PM »
Or if you're sold on the "Interest rates are low - must go shorter term", why not use VBIRX instead?  Not quite as short-term as the janus fund, but at less than 1/10 the price, maybe good enough?

BSV (ETF version of VBIRX) is on my radar.

BND (VBTLX) is looking a bit risky, though, don't you think?

Indexer

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Re: Bonds and Interest Rate Risk
« Reply #4 on: June 08, 2016, 05:51:13 PM »
The Janus unconstrained bond fund is also not exactly high quality. Less than half of the fund is investment grade or better. For comparison 100% of Vanguard Total Bond Index is investment grade or better.

The new Janus fund is basically a short term junk bond fund. That means it isn't very likely to act as a good hedge if stocks crash. You want bonds because they act as a hedge when stocks crash. That is kind of the point.

Vanguard Total bond was up 5.15% in 2008 when stocks were crashing. It was down 2.15% in 2013 when there were rising interest rate concerns, also a year when stocks were up over 30%. That is why you have bonds.
« Last Edit: June 08, 2016, 05:54:22 PM by Indexer »

Radagast

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Re: Bonds and Interest Rate Risk
« Reply #5 on: June 08, 2016, 08:29:20 PM »
Or if you're sold on the "Interest rates are low - must go shorter term", why not use VBIRX instead?  Not quite as short-term as the janus fund, but at less than 1/10 the price, maybe good enough?

BSV (ETF version of VBIRX) is on my radar.

BND (VBTLX) is looking a bit risky, though, don't you think?
Why? Because you are expecting an imminent onset of astronomical interest rates, and out of the entire investment universe only short term junk will be useful?

MustacheAndaHalf

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Re: Bonds and Interest Rate Risk
« Reply #6 on: June 08, 2016, 11:37:58 PM »
BND (VBTLX) is looking a bit risky, though, don't you think?
Although you were asking someone else this, it's the only thing you've asked so far in the thread you created.

Buying the Janus Bond fund is paying 0.76% expense ratio for a fund that is 47% cash according to Morningstar.
http://www.morningstar.com/funds/XNAS/JUCIX/quote.html

AdrianC

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Re: Bonds and Interest Rate Risk
« Reply #7 on: June 09, 2016, 12:10:56 PM »
BND (VBTLX) is looking a bit risky, though, don't you think?
Although you were asking someone else this, it's the only thing you've asked so far in the thread you created.

Is there a rule that all threads must start with a question?

Buying the Janus Bond fund is paying 0.76% expense ratio for a fund that is 47% cash according to Morningstar.
http://www.morningstar.com/funds/XNAS/JUCIX/quote.html

I'm not suggesting anyone invest in the Janus fund.

I'm just pointing out that a celebrated bond expert (Bill Gross) has his unconstrained bond fund in very short term instruments. That might make a person wonder about putting money into intermediate or long term bond funds.


AdrianC

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Re: Bonds and Interest Rate Risk
« Reply #8 on: June 09, 2016, 12:48:58 PM »
Or if you're sold on the "Interest rates are low - must go shorter term", why not use VBIRX instead?  Not quite as short-term as the janus fund, but at less than 1/10 the price, maybe good enough?

BSV (ETF version of VBIRX) is on my radar.

BND (VBTLX) is looking a bit risky, though, don't you think?
Why? Because you are expecting an imminent onset of astronomical interest rates, and out of the entire investment universe only short term junk will be useful?

BSV is hardly "short term junk".

Indexer

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Re: Bonds and Interest Rate Risk
« Reply #9 on: June 10, 2016, 09:56:36 PM »
I'm just pointing out that a celebrated bond expert (Bill Gross) has his unconstrained bond fund in very short term instruments. That might make a person wonder about putting money into intermediate or long term bond funds.

You put a lot more faith in Gross than I do. He has been wrong before... that is part of the reason he is running a 1 billion dollar fund instead of the 100 billion dollar fund he use to run.

I also don't see the point. If you want high returns you don't invest in bonds. Bonds are in the portfolio to hedge and lower risk. Short term junk bonds aren't going to help you hedge and lower risk. What is the point?

Ursus Major

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Re: Bonds and Interest Rate Risk
« Reply #10 on: June 11, 2016, 11:49:41 AM »
I also don't see the point. If you want high returns you don't invest in bonds. Bonds are in the portfolio to hedge and lower risk. Short term junk bonds aren't going to help you hedge and lower risk. What is the point?

I agree with your sentiment, though I am wondering  what actually would be the best bond hedge for some economic and/or stock market turmoil? Are high-quality corporate bonds good enough or is it better to include government bonds as well (despite their lower yield)? And what duration to pick?

MustacheAndaHalf

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Re: Bonds and Interest Rate Risk
« Reply #11 on: June 12, 2016, 11:42:00 AM »
AdrianC - So the point of this thread is to disagree with each poster, rather than create your own topic?  You mention Bill Gross, then don't have anything to say about the fund he runs.  You think he's a bond expert, but you're relying on him to predict interest rates - which even bond experts cannot do.  Not sure the point of your thread here.

AdrianC

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Re: Bonds and Interest Rate Risk
« Reply #12 on: June 13, 2016, 01:59:00 PM »
Not sure the point of your thread here.

Just wondering out loud if intermediate to long term bonds are a good place to be currently.