Why in the world would you own bonds? • Hacker News Board

Re: Why in the world would you own bonds?

#41

Post by every » Wed, Mar 17, 2021, 4:17 AM UTC

mdorazio wrote: post #33

every wrote: post #11

Trying to speculate on the commercial bond market is exceedingly difficult and risky. Even the experts often take a beating. But using certain sectors of the bond market as a savings and retirement mechanism can be quite effective. Consider US tax-free municipal bonds (munies). They are safe, with defaults at a miniscule percentage of corporate bonds. And many are backed with third party insurance against defaults. T…

Keep in mind there's a hidden gotcha with bond funds like vwalx in that the price of bonds changes over time roughly correlated with expected inflation. If you've been paying attention to vwalx and other bonds over the last month, you'll have seen the price go down significantly as treasury yields have gone up. So there's a risk that while your %yield on invested capital remains the same, the value of your invested c…

That is perhaps only relevant if you plan on selling them. I have no such plans. For me they are an ever accruing "money hose" I can turn off or on as needed...

Re: Why in the world would you own bonds?

#42

Post by paulmd » Wed, Mar 17, 2021, 4:18 AM UTC

> …The economics of investing in bonds (and most financial assets) has become stupid ... Rather than get paid less than inflation why not instead buy stuff—any stuff—that will equal inflation or better?

That is indeed the point of driving interest rates low or negative - to force people into economic activity. If holding a bond makes you negative money, you might as well buy something with it, which goes back into the economy.

It seems like there's this sense that putting your money into the market should always generate a return, and yet we have an economy that is driven by spending. The interest rate is how those are reconciled.

Re: Why in the world would you own bonds?

#43

Post by xkjkls » Wed, Mar 17, 2021, 4:19 AM UTC

nlh wrote: post #24

One thing I've learned about professional investors is that no matter what, at the end of the day they're talking their book. So whether you buy these arguments or not, Ray Dalio is simply promoting a position that Bridgewater no doubt has taken. So when he says: "I believe a well-diversified portfolio of non-debt and non-dollar assets along with a short cash position is preferable to a traditional stock/bond mix tha…

> One thing I've learned about professional investors is that no matter what, at the end of the day they're talking their book.

That doesn't make them wrong. It's basically just a tautology. If you believe X is a great investment, and you aren't investing in it, that would be a far stranger situation.

Re: Why in the world would you own bonds?

#44

Post by nickysielicki » Wed, Mar 17, 2021, 4:20 AM UTC

dannyw wrote: post #12

adeelk93 wrote: post #10

“Nobody wants bonds because the yields are too low” is basically the same statement as “nobody goes to that restaurant because it’s too crowded.”

This argument doesn't work when the Federal Reserve, an entity unconcerned about ROI, is purchasing bonds out of thin air. They now own $7 TRILLION of US govt bonds. This number was less than $100 billion before the GFC. https://www.pgpf.org/blog/2021/01/the-federal-reserve-holds-... So, yes, no investor wants bonds. Why would you buy something that's a guaranteed loss? It's increasingly just the Fed.

Mind you, this is all before “yield curve control” has been implemented! What a joke.

And when it’s not the fed, it’s (increasingly) just financial institutions buying their required allotments. We’re well on the path to a market like Japan, where nobody in their right mind actually goes out and invests in bonds, they just are required by law to have a certain amount on their balance sheets. This is why SLR is a big deal and if the fed does or doesn’t address it tomorrow, you can expect real chaos.

Re: Why in the world would you own bonds?

#45

Post by calt » Wed, Mar 17, 2021, 4:20 AM UTC

toomim wrote: post #27

nemothekid wrote: post #26

Earlier quoted context omitted.

Where would you go? The EU and Japan are already in a worse position than the US and if the US decides to commit to capital controls, they would probably follow. That only leaves China which already has capital controls.

> That only leaves China There are 195 different nations on earth. That leaves a lot more options than the EU, Japan, and China. A lot of crypto-expats are going to carribean island nations.

But on the topic of market impacting capitol flight, is that a real possibility?

No.

Re: Why in the world would you own bonds?

#46

Post by derivagral » Wed, Mar 17, 2021, 4:20 AM UTC

vecinu wrote: post #20

The conclusion kind of scares me, especially coming from Dalio. > so they could very well impose prohibitions against capital movements to other assets (e.g., gold, Bitcoin, etc.) and other locations. These tax changes could be more shocking than expected. Who truly believes this is a likely scenario? A number of folks I know are already considering fleeing the US but if this was to pass, that number would skyrocket…

There's (old) precedent for this in the USA[0] but it is hard to imagine for crypto.

[0] https://en.wikipedia.org/wiki/Executive_Order_6102

Re: Why in the world would you own bonds?

#47

Post by paulmd » Wed, Mar 17, 2021, 4:21 AM UTC

thoughtstheseus wrote: post #21

blacksqr wrote: post #9

It's possible for bond rates to go negative. Just because rates are near zero now doesn't mean there isn't room for further movement.

Just hold cash...

At a macro scale, holding cash isn't free either.

If it's in a bank account then welp, $250k FDIC limit. If it's physical then welp, gotta rent and secure a warehouse that is literally chock full of cash for anyone to steal. Etc etc.

Zero/negative interest rates are supposed to encourage productive activity, or at least spending.

Re: Why in the world would you own bonds?

#48

Post by atombender » Wed, Mar 17, 2021, 4:21 AM UTC

dannyw wrote: post #12

adeelk93 wrote: post #10

“Nobody wants bonds because the yields are too low” is basically the same statement as “nobody goes to that restaurant because it’s too crowded.”

This argument doesn't work when the Federal Reserve, an entity unconcerned about ROI, is purchasing bonds out of thin air. They now own $7 TRILLION of US govt bonds. This number was less than $100 billion before the GFC. https://www.pgpf.org/blog/2021/01/the-federal-reserve-holds-... So, yes, no investor wants bonds. Why would you buy something that's a guaranteed loss? It's increasingly just the Fed.

What happens to a bond when the Fed buys treasuries? Are they "cancelled"? Or does the Fed actually hold those bonds? The latter sounds nonsensical, but I don't know enough about how the Fed works.

Re: Why in the world would you own bonds?

#49

Post by rawtxapp » Wed, Mar 17, 2021, 4:26 AM UTC

vecinu wrote: post #20

The conclusion kind of scares me, especially coming from Dalio. > so they could very well impose prohibitions against capital movements to other assets (e.g., gold, Bitcoin, etc.) and other locations. These tax changes could be more shocking than expected. Who truly believes this is a likely scenario? A number of folks I know are already considering fleeing the US but if this was to pass, that number would skyrocket…

This was the part that caught my attention as well, it would be super interesting to see it play in real-time.

For one, how would they even put capital movements controls on crypto? For example, I just have to remember my 12 word seed and I can hop on a plane to another country and my crypto comes with me.

The other part is, wouldn't those capital controls be the last nail in the coffin of "we lost complete control of the situation"?

Re: Why in the world would you own bonds?

#50

Post by dragontamer » Wed, Mar 17, 2021, 4:26 AM UTC

every wrote: post #11

Trying to speculate on the commercial bond market is exceedingly difficult and risky. Even the experts often take a beating. But using certain sectors of the bond market as a savings and retirement mechanism can be quite effective. Consider US tax-free municipal bonds (munies). They are safe, with defaults at a miniscule percentage of corporate bonds. And many are backed with third party insurance against defaults. T…

> Consider US tax-free municipal bonds (munies). They are safe

Are they?

COVID19 has destroyed the tax-budgets of many states and cities. Deficit spending / stimulus is the current plan, but how long can States keep it up?

I know there's been a stimulus bill just passed. But is it enough to get state budgets back in order after a tough year?