Ray Hendon

Sleeping with Short Bond ETFs

If short interest rates go down further, which some are predicting, then you will get a little price bump of SHV or SHY--less so on BIL or USY.

You must forgive me if I tend to write as if all accounts were like mine, were almost everything is in a tax protected account. The disavdanatage is that you don't have the freedom to move your money around into and out of savings accounts.

This is one of the oddest periods, financially, that I have every experienced. So much of what we expect is not relevant today. But, I think more normal times will return once the dust settles on the banking and credit crisis we have experienced.

Thanks for the comment.

Ray

Sleeping with Short Bond ETFs

I think money markets are fine, most of the time, but usually short bond ETFs and short bonds will outperform MMs. As you extend out the curve, to 2+ years AD, it is almost impossible for MM to keep up with the yield.

When you say that most of the funds mention are not performing well, how do you mean that? I see them as performing fine. If, by chance, you mean over a few days or weeks, then I can see that. But, if you will look at the average duration of a prospective fund, and measure the average duration against the length of time you can keep your money invested, then as long as the AD is as long as your investment horizon, you cannot lose money. The arithmetic of average duration will work that way.

I got out of MMs some time ago because of their returns were well below inflation. Now, however, almost all short durations obligations are below it, too. So, I try and at least keep as close to inflation as I can, and a longing short-term bond ETF is the best bet, at least as far as I can see.

Best wishes,

Ray

Sleeping with Short Bond ETFs

Good question. With my fixed income holdings, I use current market conditions to determine where new monies go. In a rising or unstable interest rate environemnt, I always go short. In a falling or stable interest rate environment I extend out to the intermediate range. I do not try and time the market. I simply go where I see the best spot at the moment. Fortunately, going from an average duratio of 2.5 to, say 4.5 is not exactly a techtonic shift in assets. And, in my view, one cannot be over or under-weighted in short or intermediate bond holdings. There isn't that much difference to justify any kind of attempted precision in allocation percentages.

For most of my fixed income portfolio, I keep my allocations fairly constant, but do vary the short-intermediate allocations slightly as market conditions change, but only to the extent that I am putting in new money.

In terms of "after the fact", I could say right now, that any time the equities market takes a major downturn, short fixed income investments will beat equities. This is not rocket science, but merely the simple observation that short bonds do not fluctuate much in price. I can also say with great precision exactly how much a bond fund will appreciate or depreciate given a 1% change in interest rates. This is not because I have any special predictive powers, but rather it is because the relationship between bond prices and interest rates is scientifically defined by the value of the funds' average duration.

Best wishes,

Ray

Report from the Bond War Frontlines

The last sentence should read: They poorly reward tyhe investor...

Report from the Bond War Frontlines

Duration is one of the critical variables in a bond fund. The longer durations have much more volatility, for now, not much extra yield. Ultimately it is a personal decision as to which yields and duration are best for your portfolio. Personally, I do not recommend any long term funds. They poorly reqard the investor for the increased risks and yield.

Best wishes,

ray

Short Bond ETFs Get Short Shrift

I haven't done any analytical work on CEFs--their discount/premium pricing has always disturbed me, especially for a purchase that may be temporary. How do you know that a discount will not turn into a deeper discount when it comes time to sell?

You may have a good idea, though, if you can live with the pricing uncertainity. It might help others with your same inclination if you would put together a list of CEFs that operate in the ultrashort space.