VBLTX Price Going Down?

[dmcguigan88]

My understanding from basic finance, as well as from previous posts here, is that the price of VBLTX (Vanguard Long-Term Bond Index Fund) would decrease as interest rates rise, and vice versa. So how come now that the Fed has slashed interest rates twice over the past month, the price of VBLTX has still been going down?

Oh and first post -- happy to be here :)

[Jack0Life]

I don't have an answer for you as I was in the same boat.
I transfer all of my investments(about $300k) to VBTLX before the crash thinking I'm Rico Sauve.
For the first week or so, market went down, VBTLX went up. I went in around $11.27 and it got up to $11.63. Very happy guy here.
Then it started dropping no matter what the market did. Got down to $10.87 this past Thur.
I started reading how the bond market was in for a big fall so on Friday I decided to move everything to MM until I go back all in when "the low is in" LOL.
I got a nice send-off on Friday as I went out a high note. It went up $.15. 15 cents might not seem much but on 20k shares, its $3000 gain.

[seattlecyclone]

Maybe investors are having second thoughts about the odds the bonds will be repaid, and adjusting prices accordingly?

The relationship you describe from basic finance should generally hold true in the absence of extenuating circumstances like a change in default risk.

[waltworks]

Everything can sell off at once in a big enough panic/everyone trying to move to cash. Bonds don't *have* to move the opposite direction as stocks if nobody wants to buy them.

-W

[HPstache]

Cash is king right now.  Thought for sure gold would go to da moon as well, but it seems to be dropping.

[Radagast]

Longer term rates have never been all that closely tied to what the Fed rate is, they swing around based on market participants whims and expectations. Historically bonds and stocks were not as negatively correlated like they were for the last 20 years those are actually a bit of an anomaly. We might be returning to the 1950-2000 type of relationship.

Total bond also has quite a few corporate bonds. Those lose value if people think they might default or be downgraded to junk. It also has mortgages, which people might not like if they think everyone is about to refinance to a lower rate.

[MustacheAndaHalf]

Desperate sellers offered higher yields to the outnumbered buyers, dropping long-term bond values.
https://www.brookings.edu/blog/order-from-chaos/2020/03/19/taiwan-shows-its-mettle-in-coronavirus-crisis-while-the-who-is-mia/

Notice 3/20 shows a drop in yield, and BLV (Vanguard Long-Term Bond ETF) rose in price.  Today long-term bonds are making gains, so you'll see yields drop again once the data is in.

[hodedofome]

My opinion: the price of 30 year treasuries hit the upside targets (and the rates hit the downside targets) using technical analysis and caused a temporary selling off by people who trade that way. If there's enough demand prices will rise back up (which they've been doing the past few days).

[Jack0Life]

The FED pledges to buy unlimited amount of government bonds to support markets.
I don't know much but does this help VBTLX ??

[vand]

Yes, this is a very important divergence in behaviour that we have become accustomed to. It has potentially huge implications of how we should structure our portfolios.

With the huge stimulus packages in place, iinflation expectations are rising.

That means bond investors will be less happy about lending money that will only repay whatever dismal rates bond yields are currently promising.

Rising inflation in the fact of economic contraction (an inflationary recession, similar to what we saw in the 1970s) could be very bad combination for the traditional 60/40 portfolio.

[Jack0Life]

Yes, this is a very important divergence in behaviour that we have become accustomed to. It has potentially huge implications of how we should structure our portfolios.

With the huge stimulus packages in place, iinflation expectations are rising.

That means bond investors will be less happy about lending money that will only repay whatever dismal rates bond yields are currently promising.

Rising inflation in the fact of economic contraction (an inflationary recession, similar to what we saw in the 1970s) could be very bad combination for the traditional 60/40 portfolio.

Sorry, you are much more knowledgeable in this field than I am.
So do you think this will make bond market move up...or down ??
I'm thinking about moving some money from MM to a bond funds for the time being waiting for the market to stabilize

[vand]

Yes, this is a very important divergence in behaviour that we have become accustomed to. It has potentially huge implications of how we should structure our portfolios.

With the huge stimulus packages in place, iinflation expectations are rising.

That means bond investors will be less happy about lending money that will only repay whatever dismal rates bond yields are currently promising.

Rising inflation in the fact of economic contraction (an inflationary recession, similar to what we saw in the 1970s) could be very bad combination for the traditional 60/40 portfolio.

Sorry, you are much more knowledgeable in this field than I am.
So do you think this will make bond market move up...or down ??
I'm thinking about moving some money from MM to a bond funds for the time being waiting for the market to stabilize

It's too early to say.

Bonds have been in a bull market for longer than I've been alive, and anyone who has tried calling end of the bull has been made to look a fool, but all bull markets eventually die, and this one will too, even if it hasn't already.


Bonds are already arguably irrationably priced. The yield on the 10yr note fell as low as 0.3% recently. Think about that for a few seconds - would you lend $1000 to an entity that has proven that it can never spend less than it earns, for a total return of $1034 in TEN YEARS' TIME...  when the consequences of their profligacy means that the buying power of that $1034 will almost certainly be lower than it is today? If you wouldn't do that, why do you expect anyone else would?

That is the current state of the bond market. Now you can see why some people think that it's a huge bubble...

Bonds are meant to be a safe haven because technically a government who has a printing press never needs to default on its promises, but when a country continually spends more than it brings in then then holders of its debt will be less keen to want to lend them any more, or certainly not at the current rate of interest being offered if they are unconvinced that more money printing will not ultimately destroy the purchasing power of the existing currency

[Jack0Life]

Thanks I ended up moving $43k to some bond funds.

[MustacheAndaHalf]

My opinion: the price of 30 year treasuries hit the upside targets (and the rates hit the downside targets) using technical analysis and caused a temporary selling off by people who trade that way. If there's enough demand prices will rise back up (which they've been doing the past few days).

Technical analysis can't predict or explain the market panic that started on 3/10.  As one trader said, he got a call saying "there are no bids on 30 year bonds", which he'd never heard in his decades of experience.  Not at all normal times, as shown by the Fed taking action 3 times this month... so far.

But... I'll bite.  How does technical analysis handle panics?  I think many people use technical analysis (rarely here, but still), and if most people using technical analysis agree on how long a panic will last, that group of people will start buying up assets at the same time.  In other words, they'll reduce panic and provide liquidity because they all act at the same time on the same information.  Is that how you see technical analysis?

[hodedofome]

My opinion: the price of 30 year treasuries hit the upside targets (and the rates hit the downside targets) using technical analysis and caused a temporary selling off by people who trade that way. If there's enough demand prices will rise back up (which they've been doing the past few days).

Technical analysis can't predict or explain the market panic that started on 3/10.  As one trader said, he got a call saying "there are no bids on 30 year bonds", which he'd never heard in his decades of experience.  Not at all normal times, as shown by the Fed taking action 3 times this month... so far.

But... I'll bite.  How does technical analysis handle panics?  I think many people use technical analysis (rarely here, but still), and if most people using technical analysis agree on how long a panic will last, that group of people will start buying up assets at the same time.  In other words, they'll reduce panic and provide liquidity because they all act at the same time on the same information.  Is that how you see technical analysis?

Sometimes technical analysis works, some times it doesn't. It probably works when enough participants are using technical analysis to move a market a certain direction for a period of time.

[Mighty Eyebrows]

Thanks I ended up moving $43k to some bond funds.

Timing the market rarely works.

For anyone trying to understand Bond funds at the moment:

Bond ETFs: Not Mispricing (That Would Be The Mutual Funds)
https://www.etftrends.com/bond-etfs-not-mispricing-that-would-be-the-mutual-funds/

[Jack0Life]

Thanks I ended up moving $43k to some bond funds.

Timing the market rarely works.

For anyone trying to understand Bond funds at the moment:

Bond ETFs: Not Mispricing (That Would Be The Mutual Funds)
https://www.etftrends.com/bond-etfs-not-mispricing-that-would-be-the-mutual-funds/

I AGREE but the word is RARELY. I lost before when I tried timing the market when Trump became president.
This time it worked for me. I moved close to 300k over to VBTLX when the Dow was sitting around 29400 to 26000. My small mistake was when I moved everything from VBTLX to MM this past Fri while waiting for the market to bottom out. I'm still way ahead timing scheme.
Yesterday I moved $35k back to Index and $43k to Bonds. I got a quick 11% return on the $35k and $43k bonds might creep up just a little.

This is not meant toward you but comments like "timing the market doesn't work" are too common around here.
We all can agree on it to a degree. A lot of luck and educated goes into moving funds constantly.
You win some you lose some. I've admitted it as much.
If people rather invest passively, then great. I'm sitting at home doing nothing so I spend my time paying attention to market news constantly. I like to speculate and theres nothing wrong with that.

[moneytaichi]

@Jack0Life, I am on the same boat as you. Moved my 401K to VBTLX at the end of Jan, and then watched it fluctuated in dismay. It dropped 6.53% in 2 weeks! I finally decided to exchange VBTLX to Money Market. My learning here is not to put money in bonds if I plan to use it in 2 years.

[MustacheAndaHalf]

Sometimes technical analysis works, some times it doesn't. It probably works when enough participants are using technical analysis to move a market a certain direction for a period of time.

Sounds like we agree, there.

Thanks I ended up moving $43k to some bond funds.

Timing the market rarely works.

For anyone trying to understand Bond funds at the moment:

Bond ETFs: Not Mispricing (That Would Be The Mutual Funds)
https://www.etftrends.com/bond-etfs-not-mispricing-that-would-be-the-mutual-funds/

If corporate bond ETFs are not being mispriced, what is the Fed stepping in to fix?

https://www.etf.com/sections/features-and-news/fed-says-it-will-buy-corporate-bond-etfs
http://www.marketwatch.com/story/the-fed-is-going-to-buy-etfs-what-does-it-mean-2020-03-23
https://www.barrons.com/articles/corporate-bond-markets-fed-intervention-etf-dollar-spread-high-yield-51584988121

[Jack0Life]

@Jack0Life, I am on the same boat as you. Moved my 401K to VBTLX at the end of Jan, and then watched it fluctuated in dismay. It dropped 6.53% in 2 weeks! I finally decided to exchange VBTLX to Money Market. My learning here is not to put money in bonds if I plan to use it in 2 years.

Yeah I was a happy camper after I had everything in VBTLX.
First couple of weeks, it would creep up a little when the market drop.
Last couple of weeks, it kept going down no matter what the market did so I got a bit frustrated with it.
Last Friday I decided to move everything to MM and waited it. I got a nice send-off cause it went up .15 cents. Might not sounds like much but .15 is like $2000 when you have a lot in it.
Monday I read that the Fed will buy unlimited bonds to support markets which I think I made a mistake.
I don't try to even try to think I know much about the market but I have all this free time and I like to speculate.

[moneytaichi]

@Jack0Life, I am on the same boat as you. Moved my 401K to VBTLX at the end of Jan, and then watched it fluctuated in dismay. It dropped 6.53% in 2 weeks! I finally decided to exchange VBTLX to Money Market. My learning here is not to put money in bonds if I plan to use it in 2 years.

Yeah I was a happy camper after I had everything in VBTLX.
First couple of weeks, it would creep up a little when the market drop.
Last couple of weeks, it kept going down no matter what the market did so I got a bit frustrated with it.
Last Friday I decided to move everything to MM and waited it. I got a nice send-off cause it went up .15 cents. Might not sounds like much but .15 is like $2000 when you have a lot in it.
Monday I read that the Fed will buy unlimited bonds to support markets which I think I made a mistake.
I don't try to even try to think I know much about the market but I have all this free time and I like to speculate.

I found playing VBTLX is not as fun and rewarding with stock funds. With the same amount of energy and time, I can get much higher return on stock funds, especially now. If I do buy bond funds in the future, I'd do it for buy-and-hold for long term.

[Jack0Life]

@Jack0Life, I am on the same boat as you. Moved my 401K to VBTLX at the end of Jan, and then watched it fluctuated in dismay. It dropped 6.53% in 2 weeks! I finally decided to exchange VBTLX to Money Market. My learning here is not to put money in bonds if I plan to use it in 2 years.

Yeah I was a happy camper after I had everything in VBTLX.
First couple of weeks, it would creep up a little when the market drop.
Last couple of weeks, it kept going down no matter what the market did so I got a bit frustrated with it.
Last Friday I decided to move everything to MM and waited it. I got a nice send-off cause it went up .15 cents. Might not sounds like much but .15 is like $2000 when you have a lot in it.
Monday I read that the Fed will buy unlimited bonds to support markets which I think I made a mistake.
I don't try to even try to think I know much about the market but I have all this free time and I like to speculate.

I found playing VBTLX is not as fun and rewarding with stock funds. With the same amount of energy and time, I can get much higher return on stock funds, especially now. If I do buy bond funds in the future, I'd do it for buy-and-hold for long term.

Agreed.
Bonds are like a safe haven for the time being.

[Mighty Eyebrows]

If corporate bond ETFs are not being mispriced, what is the Fed stepping in to fix?

Hahaha. It is not that ETFs are mis-priced. It is that the govt doesn't like the real price at the moment.

Read the article.