QE is over for now. Central banks are either actively selling like the BoE or letting them mature like the fed.
Pension fund performance - do you monitor yours, how is it doing, do you actively change it?
- Thread starter danlightbulb
- Start date
Don't understand your point. Individual bonds just mature for a fixed amount you don't trade them half way through, it's a guaranteed return.
You can trade them that's the point. Trust me some people panic sell when they see a paper loss.
Soldato
the level of QT does not take below previous QE, therefore the amount of debt on the balance sheet of central banks is continuously increasing.
Therefore on average we are always in QE, this is perpetual.
Its like you are reverse stock market, when there is a crash, sell, when it goes up, buy.
Which is what you are doing by purchasing bonds in times of QT
Edit. You can buy long term bonds now and trade them when/if interest rates collapse again, but i am talking about holding till maturity
Edit2 In theory bonds should deliver slightly above inflation, in a proper free market capitalist system, however we are in full manipulation right now, therefore right now i say bonds = stability in exchange for negative returns..
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Their balance sheets are decreasing..
Your point about reverse stock market also makes no sense. QT pushes the long end yield up and prices down. Buying during QE and zero rates would be buying high and selling low.
Soldato
What i am saying is if you buy bonds now, and hold to maturity, you will have negative real return.
So you can predict the future now? You have no way of knowing that with regards to nominal bonds. Also index linked bonds exist and yields are currently real.
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Soldato
Its because as i have said, QT is puppet theatre, QE is coming and it will be higher and higher and higher, the inflation resulting from that will kill the return.
You can disagree but ultimately your statement here applies to both of us.
I don't know what you mean about a paper loss? When you directly buy s bond you pay say £100 and then in a year you get £105 back. You know what you're getting exactly and this doesn't change so where is the loss?
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You've never heard of a paper loss?
paper loss
a loss in the value of an investment, etc. that appears in accounts, but that…
dictionary.cambridge.org
When you move further out on the yield curve bond prices can move a lot.
You've never heard of a paper loss?
paper loss
a loss in the value of an investment, etc. that appears in accounts, but that…
When you move further out on the yield curve bond prices can move a lot.
Right but what I'm saying is when you buy a bond direct you know exactly what you're getting back. You buy it knowing this exact number. It's not like a stock which you buy and don't know what it's going to be worth in a years time. A bond is fixed value. So there's no paper loss (or any additional.gain either)..
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The yield to maturity is fixed when you buy. The price is not fixed and it moves all the time.
Maybe you are thinking of what they call saving bonds rather than gov/corporate bonds.
Why do you think those bond funds go down in price? Because each individual bond has also reduced in price as yields rise. If yields fall the opposite will happen.
I'm referring to directly bought fixed interest bonds i.e gilts or treasury bonds, not bond funds.
If you buy one of these bonds as an individual the idea is you hold it for the the term because that's the whole point. It's called fixed interest because you know exactly what the yield will be at maturity. Why would you buy these if your intention is to sell midway through the term?
So as long as you hold it there's no paper loss on a direct bond. Its worth £105 the day you buy it and then every day until the day it matures. What does it matter what the intervening prices do?
The reason bond funds have to sell their underlying bonds for a loss is because the fund holders want to withdraw, and the fund needs to sell the underlying asset to be able to pay out the withdraw. If it wasn't for this they wouldn't need to sell the bonds and would just hold till maturity for fixed payout.
I think as an individual if you buy a bond and then track it's price through the year with the possibility you'd sell it before maturity, well that's not the point of them, they are meant to be just held until maturity for a fixed payout and you know this when you buy it.
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Did you just ignore all my posts? I said people panic sell when they see a paper loss.
Bonds do not just have one year durations.
Then they are doing bonds wrong. They are meant to be held until maturity for a fixed return, not treated like a stock which has price variability.
T= 1:20.
"You never need to take a loss on one of these because you know the return you're going to get". @1:56.
Also 15:23 "if you'd gone for single government bonds, then you wouldn't have had any losses, you'd have known exactly what the yield was when you bought the bond".
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Dan you're just explaining what we already know. That isn't in dispute. I said if people do sell and trust me they do.
Since when were investors rational? People buy high and sell low all the time. I'm sure none of them intended to do it.
Why would people sell a bond before maturity in an environment where yields are lowering? Sure the opposite might happen but there is zero risk for people just waiting to maturity and infact a lot to gain
Who said it would be in a yields lowering environment? That would likely push bond prices up so there wouldn't be a paper loss.
But there are plenty of people.out there who went in on very long dated UK bonds as a 'sure thing', probably regretting it now as the rate and inflation outlook changes. Remember the further out in duration you go the less influence base rates have, its more about inflation and growth expectations.
DIY Investor Diary: why I’m ‘all in’ on this volatile gilt
A reader shares the details of his bet on a UK government bond maturing in 2061 that is hinged on the economic outlook of the UK.
www.ii.co.uk
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OK, that makes more senseWho said it would be in a yields lowering environment? That would likely push bond prices up so there wouldn't be a paper loss.
But there are plenty of people.out there who went in on very long dated UK bonds as a 'sure thing', probably regretting it now as the rate and inflation outlook changes. Remember the further out in duration you go the less influence base rates have, its more about inflation and growth expectations.
DIY Investor Diary: why I’m ‘all in’ on this volatile gilt
A reader shares the details of his bet on a UK government bond maturing in 2061 that is hinged on the economic outlook of the UK.