YIELD CURVE

Hello All,

Anyone concerned about the yield curve?

Over the last three months this has happened to my money market/bond holdings(all tax free):

My money market yield (duration 7 days) has gone UP from .88 to 1.18%.

My short term bond fund yield(duration 2 years) has gone DOWN from 2.84 yield to 2.24%. (NAV went down 11.03 to 10.97).

My high yield bond fundyield (duration 5 years) has gone DOWN from 5.61 yield to 4.37% (huge drop in yield :(). (NAV went down 13.01 to 12.65)

The last time I saw money market yields go up and bond funds yield go down and their net asset values dropping at the same time was January 2000 (right before the worse bear market in70 years). In English my bond funds yields are going down and their NAVs are going down at the same time. They are suppose to be inverse of each other - NAV go down/yield go up, NAV go up/yield go down. At this rate my money market will have a higher yield then my short term bond fund in a couple months.

Anyone else following this and concerned like me. I am so glad I am not retired and living on investment income right now. God bless thosewho are.

MT

MarketTimer wrote:
Hello All,

Anyone concerned about the yield curve?

Over the last three months this has happened to my money market/bond holdings(all tax free):

My money market yield (duration 7 days) has gone UP from .88 to 1.18%.

My short term bond fund yield (duration 2 years) has gone DOWN from 2.84 yield to 2.24%. (NAV went down 11.03 to 10.97).

My high yield bond fundyield (duration 5 years) has gone DOWN from 5.61 yield to 4.37% (huge drop in yield :(). (NAV went down 13.01 to 12.65)

The last time I saw money market yields go up and bond funds yield go down and their net asset values dropping at the same time was January 2000 (right before the worse bear market in70 years). In English my bond funds yields are going down and their NAVs are going down at the same time. They are suppose to be inverse of each other - NAV go down/yield go up, NAV go up/yield go down. At this rate my money market will have a higher yield then my short term bond fund in a couple months.

Anyone else following this and concerned like me. I am so glad I am not retired and living on investment income right now. God bless thosewho are.

MT
The bond market has it right. If we go inverted watch out. The fed needs to stop tightening because inflation IS here.
MT

[cowboy]

So whats this mean for the F fund MT. Will it keep trending up!

Cowboy,

F fund is a risk reward thing. The bond market is very smart and know what is truly going on. However yields are so low it is not worth the risk in my opinion to beat that the yield will continue to go down from here since we are at historic lows.

The best time to get into the F fund is when yields are really high over historic terms and ride the 10 year down. I would look to get into F fund when the 10 year yield gets above 5.50. I believe that the F fund will be hurt moving forward when the people in 10 years move to money markets since the spread is very flat.

My money market is 1.58 and the 10 year is 3.97. The smart money will hope to shorter term fixed investements very shortly.

Bottom line: If I was in the F fund I would stay there until the end of the week and then bail.

cowboy wrote:

So whats this mean for the F fund MT. Will it keep trending up!

Cowboy,

F fund is a risk reward thing. The bond market is very smart and know what is truly going on. However yields are so low it is not worth the risk in my opinion to beat that the yield will continue to go down from here since we are at historic lows.

The best time to get into the F fund is when yields are really high over historic terms and ride the 10 year down. I would look to get into F fund when the 10 year yield gets above 5.50. I believe that the F fund will be hurt moving forward when the people in 10 years move to money markets since the spread is very flat.

My money market is 1.58 and the 10 year is 3.97. The smart money will hope to shorter term fixed investements very shortly.

Bottom line: If I was in the F fund I would stay there until the end of the week and then bail.

Good luck! MT



cowboy wrote:

So whats this mean for the F fund MT. Will it keep trending up!

[cowboy]

Thanks! I'm currently 100% G. I didn't jump into F fund cause I thought it will peak soon and didn't think the risk was worth it. Might try to catch a bounce prior to Oct. 7 th put if I don't will wait.

Cowboy,

No problem. Glad someone listens to reason. As you can see we are at historic lows here. This is not the time to bet that we will go much lower from here. The risk/reward is not in our favor for this move. When the money jumps to shorter term instruments you will be left holding the bag - 5 year is at 3.26. Five years is not worth 70 bases points (10 year a little under 4%). Holding the bag is not a goodgood feeling. We would want to wait for the 10 year to be on the top to get into the F fund...not the other way around. Good luck!

MT



http://chart.finance.yahoo.com/c/my/_/_tnx.gif



cowboy wrote:

Thanks! I'm currently 100% G. I didn't jump into F fund cause I thought it will peak soon and didn't think the risk was worth it. Might try to catch a bounce prior to Oct. 7 th put if I don't will wait.

[Spaf]

Cowboy

It's understandable the arguement that MT uses. I'm not in disagreement. For the long term I prefer the C-S-I funds. But that market has been too choppy. There were some profits to be made if you timed the cycles just right. I went 75% F fund the other day. In checking the chart (attached), this is what I saw. The bonds may turn sour. Heck, I can always transfer to the G fund if need be.

Spaf wrote:
Cowboy

It's understandable the arguement that MT uses. I'm not in disagreement. For the long term I prefer the C-S-I funds. But that market has been too choppy. There were some profits to be made if you timed the cycles just right. I went 75% F fund the other day. In checking the chart (attached), this is what I saw. The bonds may turn sour. Heck, I can always transfer to the G fund if need be.

Spaf,

It may be worth a dabble...however the hedge funds are playing in here now because it is one of the few places to make money. I do not want to see Cowboy get left holding the bag when the hop down to a shorter term instruments and take profits.

This looks like a top here and the trend is down:

http://ichart.finance.yahoo.com/w?s=AGG

[cowboy]

I see your chart Spaf, I have made money with the F fund jumping into and out of stocks with it. I'm thinking if your holding them don't do it for long as in April when the market decided to go down it went in .08 cent junks. My thinking is the risk/reward according to that chart is not worth it as the F fund is peaking. My thought is we tend to think F is a safe fund but it does trend down like the other stocks. Using the fund as a buy hold thing may not be a good investment. My thinking is that the F has had some nice gains the last month or so and is bound to take back some sooner or later.

[azanon]

Hello All,

Anyone concerned about the yield curve?

Over the last three months this has happened to my money market/bond holdings(all tax free):

My money market yield (duration 7 days) has gone UP from .88 to 1.18%.

My short term bond fund yield (duration 2 years) has gone DOWN from 2.84 yield to 2.24%. (NAV went down 11.03 to 10.97).

My high yield bond fundyield (duration 5 years) has gone DOWN from 5.61 yield to 4.37% (huge drop in yield :(). (NAV went down 13.01 to 12.65)

The last time I saw money market yields go up and bond funds yield go down and their net asset values dropping at the same time was January 2000 (right before the worse bear market in70 years).

Yes, several of us are probably aware interest rateshave begun to risesince 3 months ago. Also, the last timeinterest rates rosewas roughly Mid 1999-Mid2000. When interest rates rise, they have the effects on money markets and bonds as you described.

With respect to interest rates, I still suggeststocks since rates are too low for MMfunds to be attractive, rising rates are bad for bonds (esp those with long maturity dates), and low rates make it attractive for companies to borrow money and be aggressive.

Prime interest rate chart here: http://www.nfsn.com/library/prime.htm

As you suggested, rising rates is generallly bearish for stocks, but with rates as low as they are, i wouldnt get too concerned yet. In mid 99', the prime rate passed 9% which is usually bad news for stocks. We're nowhere close to 9% now.