Time to bail out of bonds?

Discuss your favourite picks, broker, and trading or investment style.
Sensei
Veteran Contributor
Veteran Contributor
Posts: 1922
Joined: 07 Mar 2008 21:22
Location: Tokyo

Re: Time to bail out of bonds?

Post by Sensei »

Hi,

I guess my interest rate predictions were not well received and as usual I was summarily dismissed in favour of talking about a less important issue in my opinion, bond ladders.

Still, there are four reasons why I think the Fed (and by association The Bank of Canada) will raise rates in 2015.

1. The Fed wants to raise rates and thinks higher rates are desirable. If you've been learning post-Bernanke Fed speak, Yellen has said this several times, if not necessarily in normal English.
2. Sure, there are no signs of inflation right now, but the interest rate raise is intended to be pre-emptive. They aren't going to wait until inflation gets out of control. The Fed, at least among themselves, have vowed not to get caught with their pants down as they did in 2008/9. Also, they are quite conscious of not being reckless and want to do it in a slow and controlled way, not wait for the next crisis. As I said, .25% increments seem fairly likely.
3. Some modest interest rate increases would help more companies and people than hurt them. Among the companies, banks and and insurance are number 1. A lot of knowledgeable people talk about GICs up thread. People used to retire quite comfortably on 4-5% GICs, but I doubt whether a comfortable retirement is now possible based on rates now. If it is, tell me how. Yellen has also spoken of wage inequality, and this would be one way to reduce it.
4. The US economy is practically among developed economies now with practical no foreseeable obstacles to growth in 2015 and probably 2016. If any country is going to experience inflation it would be them.

In my opinion, this logic suggests a raise and if their is one, certain people need to be careful. I don't think any bond fund in the US or Canada will not be affected. If you have bought individual bonds, can avoid hefty interest rate taxes, and hold to maturity, these seem to be the best ways to reduce or eliminate the negative effects of an interest rate rise on FI. I don't see it being any more complicated than that unless the bond issuer defaults.
Cheers

"A dividend being paid today is always a positive return." Josh Peters, Morningstar
User avatar
ghariton
Veteran Contributor
Veteran Contributor
Posts: 15954
Joined: 18 Feb 2005 18:59
Location: Ottawa

Re: Time to bail out of bonds?

Post by ghariton »

newguy wrote:
ghariton wrote:T-bills had negative yearly real returns for the years ... 2019 ...
You said you can't predict interest rates??
:D :D :D

I can't predict interest rates, but I can predict a high rate of typos in my posts.

George
The juice is worth the squeeze
User avatar
ghariton
Veteran Contributor
Veteran Contributor
Posts: 15954
Joined: 18 Feb 2005 18:59
Location: Ottawa

Re: Time to bail out of bonds?

Post by ghariton »

Sensei wrote:I guess my interest rate predictions were not well received and as usual I was summarily dismissed in favour of talking about a less important issue in my opinion, bond ladders.
Sorry, didn't mean to ignore you. It's just that I find it really hard to forecast interest rates. A look back, not just at posts on this forum, but pronouncements by high-profile pundits and money managers (Bill Gross comes to mind), suggests that other people also have difficulty forecasting interest rates.

In particular, for every factor pushing interest rates in one direction, there seems to be another pushing the other way. Let me illustrate:
1. The Fed wants to raise rates and thinks higher rates are desirable. If you've been learning post-Bernanke Fed speak, Yellen has said this several times, if not necessarily in normal English.
As you point out, Fed pronouncements are notoriously hard to decode. But the Fed has been hinting (I think) at higher interest rates for some four years now. Each time, interest rate hikes get delayed because, well, the economy is fragile right now.
2. Sure, there are no signs of inflation right now, but the interest rate raise is intended to be pre-emptive.
I'm one of the many people who got my inflation forecasts badly wrong in 2009, and 2010, and 2011, and... Maybe the Fed feels more confident in its forecasting ability than I do right now. But I will note that there are many prominent economists, led by Paul Krugman, trumpeting that the Fed need not worry about inflation for some time yet. Others, such as Barry Eichengreen, are drawing parallels to the 1930s and argue that the greater risk is to tighten too soon, rather than too late. Who will Janet Yellen listen to (and remember that she has only one vote)?
3. Some modest interest rate increases would help more companies and people than hurt them. Among the companies, banks and and insurance are number 1.
Traditional economic reasoning -- which may or may not still be valid -- would argue that interest rate increases hurt companies. The original argument was that such increases would increase the hurdle rate for new investments and so slow down growth. Now, an additional argument is that interest rate increases attract more foreign investors to U.S. securities and U.S. markets, driving up the USD exchange rate, and making U.S. exports less competitive. If true, this would hurt U.S. exporters as a class. U.S. consumers might be better off with a higher USD, but then nobody cares about consumers.

Some predict that we are headed for some nasty currency wars. If so, then lower exchange rates become a weapon. In turn, this would require lower, not higher, interest rates.
People used to retire quite comfortably on 4-5% GICs, but I doubt whether a comfortable retirement is now possible based on rates now. If it is, tell me how.
People can't plan on retiring on the income from FI. They have the choice of either (a) investing heavily in equities, with the risks that entails, or (b) spending down their principal. Think annuities: you can still plan on a 6% draw if you are willing to leave no estate.
Yellen has also spoken of wage inequality, and this would be one way to reduce it.
The conventional wisdom is that the rich have capital (stocks, bonds, etc.) and that the poor have debts. It follows from this narrative that higher interest rates help the rich and hurt the poor. In reality, things are not as simple, but that's the narrative.
4. The US economy is practically among developed economies now with practical no foreseeable obstacles to growth in 2015 and probably 2016. If any country is going to experience inflation it would be them.
The Economist's average of forecasters for 2015 shows an average forecast of inflation for the U.S. of 0.4%. Britain, Japan, Australia and Canada all show higher forecasts for 2015.

Cheers

George
The juice is worth the squeeze
User avatar
Springbok
Veteran Contributor
Veteran Contributor
Posts: 5438
Joined: 22 Mar 2005 16:47

Re: Time to bail out of bonds?

Post by Springbok »

ghariton wrote: T-bills had negative yearly real returns for the years 1971, 1972, 1973, 1974, 1975, and 1977.

Also, 2002, 2009, 2019, 2011, 2013 and 2014.

George
Given that this thread is likely about whether or not an average FWF investor should bail out of bonds, I am not sure whether t-bills are relevant to many of us. Certainly not to me. GIC perhaps a little more so. Seems GIC yields have been more stable. Negative real return in a few of the early years (chart below). Likely not a problem for those holding a ladder.

I tend to go with a little added risk and only buy bonds (or GICs) that pay sufficient to cover our SWR. Otherwise, I use Convertible Debentures or pfds. This tends to also cover any chance of having a negative real return on our FI holdings. We only have FI in registered accounts because for us (and many investors) it is difficult to achieve a positive after tax return on GIC ladders (and conservative bond ladders)

Back in the 70s/80s, we had very few investments - Into buying houses (and boats). It was a good time for such things as it turned out. Accidental Market timing sometimes works!

If anyone has better GIC data and can fill in the blanks, please do so. GIC rates are those on Jan 1st.

Code: Select all

		
Year	Inflation	5yr gic %
1970	1.3%		 8.61
1971	5.0%		 8.11
1972	5.1%		 7.04
1973	9.4%		 7.54
1974	12.3%	   8.61
1975	9.5%		 9.39
1976	5.8%		10.00
1977	9.5%		 9.21
1978	8.4%		 8.75
1979	9.8%		 9.96
1980	11.1%	  11.14
1981	12.2%	  13.18
1982	9.2%		16.14
1983	4.6%		11.93
1984	3.7%		10.96
1985	4.4%		10.85
1986	4.2%		10.13
1987	4.2%		 8.79
1988	4.0%		10.25
1989	5.2%		10.54
1990	5.0%		10.38
1991	3.8%		9.79
1992	2.1%		7.92
1993	1.7%		7.08
1994	0.2%		5.00
1995	1.8%		8.69
1996	2.2%		5.53
1997	0.7%		4.91
1998	1.0%		4.39
1999	2.6%		4.22
2000	3.2%	
2001	0.7%	
2002	3.9%	
2003	2.0%	
2004	2.1%	
2005	2.2%		2.88
2006	1.6%		2.78
2007	2.4%		2.93
2008	1.2%		3.23
2009	1.3%		2.08
2010	2.4%		1.88
2011	2.3%		1.98
2012	0.8%		1.85
2013	1.2%		1.63
2014	1.5%		1.63
2015			    1.48
Last edited by Springbok on 24 Feb 2015 09:32, edited 2 times in total.
User avatar
Dejavu
Contributor
Contributor
Posts: 566
Joined: 20 Jan 2008 00:09
Location: Winnipeg

Re: Time to bail out of bonds?

Post by Dejavu »

"time to bail out of bonds" sounds redundant to me. If bonds are part of your AA then a bond ladder is all you need to ride out the inevitable changes in interest rates/ inflation. Surley we can all agree these two rates are joined at the hip. The US and Canada 30 year bond rates are paying approx 2%.
To me, the market isnt pricing in any sudden rate changes. Even if that is not true, a ladder is all thats needed to cope. I guess if you need to get a capital gain from your bonds you will be disapointed. For me, FI is to protect capital, equities provide the market returns.
For disclosure my FI is all MB CU gics with the lowest recent reinvestment rates of 3%.
Bailing out of bonds, now, is just market timing. Just keep the ladder going and move on, Dejavu.
Whatever you can do, or believe you can, begin it, for boldness has genius, power and magic in it. - Goethe
User avatar
tinypotato
Contributor
Contributor
Posts: 37
Joined: 26 Jul 2010 20:34

Re: Time to bail out of bonds?

Post by tinypotato »

Interesting discussion.

Currently using a bond ETF (e.g. XSB, etc.) as the FI portion of an RSP. However, I am considering replacing a chunk of that with a GIC ladder.

My thoughts are:

a) The main purpose of this portion of the RSP is for capital preservation. With bond yields so low, the risk seems to be a bit lopsided - there's downside of rates going up, but not as much upside if rates go to 0 to slightly below. As other posters mentioned previous, a 1-2% increase in rates can have significant impact.

b) With the YTM on something like XSB in the 0.95%; a 5year GIC ladder is going to be "close enough"

Any thoughts? Do people recommend switching to a GIC ladder at this time?
User avatar
ghariton
Veteran Contributor
Veteran Contributor
Posts: 15954
Joined: 18 Feb 2005 18:59
Location: Ottawa

Re: Time to bail out of bonds?

Post by ghariton »

U.S. government economists can't forecast interest rates either:
In the early 1980s, forecasters did a good job of predicting the path of bond rates, though their job was a bit easier than usual because rates were so highly elevated that it was a pretty sure bet they’d be headed back down. (“Regression to the mean,” for all you statistics fans.)

But since the mid-1990s, government forecasters have consistently overestimated this critical variable.

This “consistently” point is essential. Most economic forecasts are off one way or the other — too high or too low, but they tend to be pretty much balanced in either direction. But on the 10-year bond rate, the errors are systemic.

Forecasters are regularly overestimating and thus regularly overstating, all else being equal, future interest payments on the debt.
I would guess that, as long as governments have huge debts and have to pay interest on it, they would rather see low interest rates. Of course, most central banks are independent. However, there may be some influence, even if unconscious.

George
The juice is worth the squeeze
Sensei
Veteran Contributor
Veteran Contributor
Posts: 1922
Joined: 07 Mar 2008 21:22
Location: Tokyo

Re: Time to bail out of bonds?

Post by Sensei »

Hi,

Ghariton, thanks for the post and well played. I prefer to be disagreed with rather than 'dismissed'. I've had this discussion on and off with a colleague over the last few years. I lost a bet once last April. I was to eat my sweater but fortunately my partner didn't hold me to the bet.

Anyway, let's see what happens. The first test of my theory comes in April.
Cheers

"A dividend being paid today is always a positive return." Josh Peters, Morningstar
User avatar
AltaRed
Veteran Contributor
Veteran Contributor
Posts: 33398
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: Time to bail out of bonds?

Post by AltaRed »

tinypotato wrote:b) With the YTM on something like XSB in the 0.95%; a 5year GIC ladder is going to be "close enough"

Any thoughts? Do people recommend switching to a GIC ladder at this time?
Many discussions in FWF threads on this issue. If you do not need the daily/weekly/monthly liquidity that XSB provides, and it shouldn't if this is in an RRSP, a 5 year GIC ladder outperforms XSB and any other similar bond ETF of similar (circa 2.5 year) duration. I have had a 5 year GIC ladder operating for many years in my RRSP and it is currently yielding in the order of 3%*, but dropping slowly as higher yield GICs mature and need to be renewed.

* My actual return over the past 12 months is currently circa 3.5%, but that is because I substituted in a few 5 year corporate bonds and debentures into the GIC mix to juice returns.
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom
User avatar
Springbok
Veteran Contributor
Veteran Contributor
Posts: 5438
Joined: 22 Mar 2005 16:47

Re: Time to bail out of bonds?

Post by Springbok »

tinypotato wrote:
Any thoughts? Do people recommend switching to a GIC ladder at this time?
Switching to or commencing a ladder? Yield on short term GICs is pityful. Choice may depending on the amount you have to invest. Personally, I would not buy GICs, but if the rates and low risk are attractive to you, perhaps buy one 5yr GIC each year for next 5 years? In mean time, perhaps put funds from bond etfs into a HIS or other higher yielding fund? Does that make sense?
like_to_retire
Veteran Contributor
Veteran Contributor
Posts: 5923
Joined: 27 Feb 2005 07:14
Location: Canada

Re: Time to bail out of bonds?

Post by like_to_retire »

tinypotato wrote:Any thoughts? Do people recommend switching to a GIC ladder at this time?
The 5 year GoC bond returns about 0.75% right now, and a 5 year GIC yields about 2%.

In the world of fixed income, it's a whopping difference.

To get a 5 year GIC ladder running on all cylinders takes 4 years, but the best way to get started is to buy a 1, 2, 3, 4, 5 year GIC to get started, then buy 5 year upon maturity.

Even the 1 year GIC is paying 1.46% (at TDW) today. That's about double a 5 year GoC rate.

To me it's the best way to go right now.

ltr
zinfit
Veteran Contributor
Veteran Contributor
Posts: 2517
Joined: 25 Apr 2009 20:24

Re: Time to bail out of bonds?

Post by zinfit »

Springbok wrote:
zinfit wrote:I note on both sides of the border you can buy corporate bond ETFs which have fixed maturity dates. I am thinking they would have the advantage of laddered bonds at a lower cost and better diversification. The yields look better then what I can buy from Action Direct and the credit quality seems better then the one's I have been buying. Even deducting the mer they are still more attractive. As individual bonds mature I will be buying this product.
I had a quick look at BMO's offerings in fixed maturity etfs. They only appear to offer 2020 or 2025 maturity. Not useful if annual withdrawals required. RBC offers a series with annual maturities 2016-2021. Looking at the RBC 2020, weighted average YTM is only 1.86%. Our bond ladder yield is over double that. BMO 2020 has weighted average YTM of 2.1%. These are lower than GICs. What would reason be to consider them?
I find the research ambigious. Action Direct shows the BMO 10 year with a yield of 3.78%. If you deduct the mer of .25 you basically get a 3.50% return. If RBC is accurate this looks like an attractive option. If you need to sell you are looking at a $9.95 another advantage. I will be looking for more insight on these products. If I have a 10 year ladder the BMO product looks like an option for a maturing bond.
User avatar
Norbert Schlenker
Veteran Contributor
Veteran Contributor
Posts: 7960
Joined: 16 Feb 2005 09:56
Location: An Argument Surrounded By Water
Contact:

Re: Time to bail out of bonds?

Post by Norbert Schlenker »

zinfit wrote:Action Direct shows the BMO 10 year with a yield of 3.78%. If you deduct the mer of .25 you basically get a 3.50% return.
Beware! The yield AD is quoting is a running yield, not yield to maturity. If you look at BMO's page for the ETF, you'll see that the weighted average yield to maturity in the portfolio is only 2.68%. Now deduct the 0.30% management fee, plus another 0.08% (guessing now) for miscellaneous expenses, and you're at 2.3%.

How does that feel?
Nothing can protect people who want to buy the Brooklyn Bridge.
User avatar
Springbok
Veteran Contributor
Veteran Contributor
Posts: 5438
Joined: 22 Mar 2005 16:47

Re: Time to bail out of bonds?

Post by Springbok »

zinfit wrote: Action Direct shows the BMO 10 year with a yield of 3.78%. If you deduct the mer of .25 you basically get a 3.50% return. If RBC is accurate this looks like an attractive option. If you need to sell you are looking at a $9.95 another advantage. I will be looking for more insight on these products. If I have a 10 year ladder the BMO product looks like an option for a maturing bond.
It's not only Action Direct that quote misleading data on-line. Most sites appear to be automated and only show current yield. I saw many with incomplete data on those etfs.

I have an ADR (Sasol) that pays dividends bi-annualy. The first one is usually about double the second one. Even BMOIL simply doubles the first dividend and as a result overstates the dividend yield. Computers are just not too smart sometimes....
User avatar
SoninlawofGus
Veteran Contributor
Veteran Contributor
Posts: 1284
Joined: 21 Aug 2007 12:10
Location: Ottawa

Re: Time to bail out of bonds?

Post by SoninlawofGus »

Springbok wrote: If anyone has better GIC data and can fill in the blanks, please do so. GIC rates are those on Jan 1st.
Thanks. Where did you find this data?
User avatar
Springbok
Veteran Contributor
Veteran Contributor
Posts: 5438
Joined: 22 Mar 2005 16:47

Re: Time to bail out of bonds?

Post by Springbok »

SoninlawofGus wrote:
Springbok wrote: If anyone has better GIC data and can fill in the blanks, please do so. GIC rates are those on Jan 1st.
Thanks. Where did you find this data?
I forget exactly - Partly a government site (BoC or Stascan), rest from some other on-line sites. Sort of hybrid.
zinfit
Veteran Contributor
Veteran Contributor
Posts: 2517
Joined: 25 Apr 2009 20:24

Re: Time to bail out of bonds?

Post by zinfit »

Springbok wrote:
zinfit wrote: Action Direct shows the BMO 10 year with a yield of 3.78%. If you deduct the mer of .25 you basically get a 3.50% return. If RBC is accurate this looks like an attractive option. If you need to sell you are looking at a $9.95 another advantage. I will be looking for more insight on these products. If I have a 10 year ladder the BMO product looks like an option for a maturing bond.
It's not only Action Direct that quote misleading data on-line. Most sites appear to be automated and only show current yield. I saw many with incomplete data on those etfs.

I have an ADR (Sasol) that pays dividends bi-annualy. The first one is usually about double the second one. Even BMOIL simply doubles the first dividend and as a result overstates the dividend yield. Computers are just not too smart sometimes....
On the RBC Target 21 I took the monthly distributions[ for the past 12 months] and did the math on it's current unit price. It worked out to 3.4%. As the the current unit price is about 5% higher then the redemption price . If so it's real yield would be something like 2.6%.
User avatar
ghariton
Veteran Contributor
Veteran Contributor
Posts: 15954
Joined: 18 Feb 2005 18:59
Location: Ottawa

Re: Time to bail out of bonds?

Post by ghariton »

Janet Yellen is in no hurry to raise interest rates:
Janet L. Yellen, the Federal Reserve chairwoman, told Congress Tuesday that the Fed was pleased with recent economic growth, convinced there was room for improvement and still pondering when to start reaising interest rates. In testimony before the Senate Banking Committee, Ms. Yellen advanced the Fed’s slow -motion progress toward raising its benchmark interest rate, describing for the first time how the central bank plans to signal that the moment is approaching.

But she said that patience remained the central bank’s watchword.

“There has been important progress,” she said. “However, despite this improvement, too many Americans remain unemployed or underemployed, wage growth is still sluggish and inflation remains well below our longer-run objective.”
I don't think there's any rush to "do" anything about fixed income investments.

George
The juice is worth the squeeze
Sensei
Veteran Contributor
Veteran Contributor
Posts: 1922
Joined: 07 Mar 2008 21:22
Location: Tokyo

Re: Time to bail out of bonds?

Post by Sensei »

Hi,

Inflation and employment are two indicators that the Fed is watching to be sure, but here's another quote from Yellen yesterday:
"Our confidence has improved. When we raise rates, it will be a signal of confidence," she reiterated.
Underlining mine. It isn't 'if', but 'when'.

Also, markets, at least today (Feb. 24) aren't reading Yellen's comments as 'No interest rate cuts on the horizon'. Every US REIT that I own (4 and 10% of my USD portfolio) took at least a 1% hit yesterday on an up day for the US. I feel this indicates that the US economy will reach that level of confidence sometime this year. I'm being bold and saying April.
I don't think there's any rush to "do" anything about fixed income investments.
Neither do I and I hope I didn't imply that. Everyone should have a sensible portfolio of securities able to absorb the effects of expected events including variations in interest rates. Or, have a rationale in place such as 'bonds cushion the effects of a crash'.

That said, at this point, I don't see 'down' as any possibility. They will go up, even if 'When' is moot. If I was concerned about anyone, it would be owners of bond funds and that only if they are concerned about capital appreciation. They will be disappointed and/or underwhelmed this year. If they are satisfied with the income from a conservative bond portfolio or bond fund or funds, fine.

I speak for people that have more than a 5-year investment horizon (of which there are 1000s on FWR) and about whether bonds are a good investment at this point. My post is as a counterpoint to many of the posters above who are protecting a retirement nest egg and living off investments. They mostly know each other from long years of posting on FWR or elsewhere if not personally. I'm not in that group. I'm in the accumulation state still, and a FI position of more than mine is right now (8% perhaps) is not really an option and probably for others trying to invest for retirement.
Cheers

"A dividend being paid today is always a positive return." Josh Peters, Morningstar
User avatar
ghariton
Veteran Contributor
Veteran Contributor
Posts: 15954
Joined: 18 Feb 2005 18:59
Location: Ottawa

Re: Time to bail out of bonds?

Post by ghariton »

Sensei wrote:Also, markets, at least today (Feb. 24) aren't reading Yellen's comments as 'No interest rate cuts on the horizon'. Every US REIT that I own (4 and 10% of my USD portfolio) took at least a 1% hit yesterday on an up day for the US.
Yes. On the other hand, the U.S. dollar took a tumble against foreign currencies (certainly against the Canadian dollar) minutes after Ms. Yellen spoke. That suggests to me that investors see ongoing low interest rates in the U.S. (for how long, I don't know) and are moving their money elsewhere.
That said, at this point, I don't see 'down' as any possibility.
That depends on whether you're thinking of real or nominal rates. Clearly, real rates can go down a lot further, depending on the inflation rate. In turn, that could lead to appreciation of the value of indexed bonds, such as RRBs.

But even nominal bonds still have some room for rates to go down, and prices to go up. We are seeing corporate bonds in Europe at 0.08%. Imagine if Canadian or U.S. bonds went down to that level. Not very probable, I grant you. But not impossible.
If I was concerned about anyone, it would be owners of bond funds and that only if they are concerned about capital appreciation. They will be disappointed and/or underwhelmed this year. If they are satisfied with the income from a conservative bond portfolio or bond fund or funds, fine.
I think that the consensus around here is that FI is held mostly for stability and capital protection, not capital appreciation. Helps us sleep at night when equities are particularly volatile. If an investor can tolerate the volatility in an equity-heavy portfolio, then fine. But the problem is that many investors don't really know their tolerance for volatility, and are surprised in a downturn. The danger then is that, panicked, they sell at the worst possible time. This is the situation which, in my mind, motivates me to hold fixed income. How much fixed income? How much volatility can I tolerate?
I speak for people that have more than a 5-year investment horizon (of which there are 1000s on FWR) and about whether bonds are a good investment at this point.
My personal view is that FI is a way to counter volatility and increase stability of a portfolio.I believe that, for most people, tolerance of volatility (or risk) decreases with age. Not many people my age are bungee-jumping or racing cars. But that is a function of age, more than accumulation/decumulation, in my opinion.
I'm not in that group.
Let's have lunch next time I'm in Tokyo.

George
The juice is worth the squeeze
User avatar
Springbok
Veteran Contributor
Veteran Contributor
Posts: 5438
Joined: 22 Mar 2005 16:47

Re: Time to bail out of bonds?

Post by Springbok »

zinfit wrote: On the RBC Target 21 I took the monthly distributions[ for the past 12 months] and did the math on it's current unit price. It worked out to 3.4%. As the the current unit price is about 5% higher then the redemption price . If so it's real yield would be something like 2.6%.
Did you take into account drop in distributions between now and 2021 as holdings mature?

On RBC's site they state that the average yield to maturity for the 2021 etf is 2.06%. It confirms what you found out that current yield is 3.48%, but that is not what you get going forward. Real yield will be about 1/2 a %.

http://etfinfo.rbcgam.com/exchange-trad ... ges/rqi.fs
Sensei
Veteran Contributor
Veteran Contributor
Posts: 1922
Joined: 07 Mar 2008 21:22
Location: Tokyo

Re: Time to bail out of bonds?

Post by Sensei »

Hi,

George wrote:
Let's have lunch next time I'm in Tokyo.
I'll buy if I'm wrong about April!
Cheers

"A dividend being paid today is always a positive return." Josh Peters, Morningstar
gsp_
Veteran Contributor
Veteran Contributor
Posts: 2318
Joined: 12 Apr 2011 17:48
Location: Montreal

Re: Time to bail out of bonds?

Post by gsp_ »

Sensei wrote:I'll buy if I'm wrong about April!
Keep the credit card handy. :wink:

She said it won't happen at the next 2 meetings so June at the earliest. Yellen: No rate hike for next couple FOMC meetings
zinfit
Veteran Contributor
Veteran Contributor
Posts: 2517
Joined: 25 Apr 2009 20:24

Re: Time to bail out of bonds?

Post by zinfit »

Springbok wrote:
zinfit wrote: On the RBC Target 21 I took the monthly distributions[ for the past 12 months] and did the math on it's current unit price. It worked out to 3.4%. As the the current unit price is about 5% higher then the redemption price . If so it's real yield would be something like 2.6%.
Did you take into account drop in distributions between now and 2021 as holdings mature?

On RBC's site they state that the average yield to maturity for the 2021 etf is 2.06%. It confirms what you found out that current yield is 3.48%, but that is not what you get going forward. Real yield will be about 1/2 a %.

http://etfinfo.rbcgam.com/exchange-trad ... ges/rqi.fs
thank you for that important insight. Didn't cross my mind. Once these mature they will put them into treasury bills until the target date.To bad they didn't just get all 6 year bonds that mature around the maturity date. Perhaps some of the USA based products might be stronger in this area?
User avatar
ghariton
Veteran Contributor
Veteran Contributor
Posts: 15954
Joined: 18 Feb 2005 18:59
Location: Ottawa

Re: Time to bail out of bonds?

Post by ghariton »

If one is really worried about rising interest rates, one can always invest in negative-duration ETFs.

George
The juice is worth the squeeze
Post Reply