| Author |
Message |
Ell
Guest
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 Posted:
Thu Nov 10, 2005 9:01 am Post subject:
Re: Inflation protected bonds |
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"Loose On the Lead" <dts2172-ng@yahoo.com> wrote
| Quote: | Ell wrote:
"Loose On the Lead" <dts2172-ng@yahoo.com> wrote
rono wrote:
Actually with a bond fund, you are more exposed to inflation risk
than
if you actually held the bond from issue to maturity.
This is a myth. Bonds behave the same way outside a fund as they do
inside. If you hold to maturity, you don't see a loss on paper, but
that doesn't mean you haven't lost something in real terms.
And this is incredibly poor writing.
Funny you should write that after misspelling your own name.
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You are dull.
| Quote: |
Bonds held to maturity: Principal is returned.
Bonds held in a fund: Principal is not necessarily returned.
That's wonderful, as long as all you care about is getting your
principal back. Some people are more interested in long-term total
return, in which case holding a bond to maturity is not always the best
course of action.
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This is such crap.
It can be the best course of action. There's simply no telling in advance.
Plus it depends on the individual's goals.
| Quote: | And that brings me to the inflation issue, which I
forgot to address directly the first time around. A bond held in a
mutual fund is the same as a bond held individually. When a bond in a
mutual fund is sold, the sale presumably takes place because the
manager thinks he can improve returns by holding a different bond. If
the manager is right, then clearly the fund keeps up with inflation
better than the original bond would have on its own. If he's wrong, it
doesn't.
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This is woefully misguided or just flat out bullshit.
The structure of investment grade bond funds is much more constrained than
stock mutual funds. Duration of a certain length is sought. A certain
quality (investment grade or closer to junk, for example) of bond is sought.
Running such funds is much more mechanical than running non-index stock
mutual funds.
| Quote: | Regarding TIPS, Rono and Darkness are right. TIPS behavior is
complicated.
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The markets are complicated, period.
TIPS bond funds follow investment grade bond funds of similar duration.
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Gary C
Guest
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| Posted:
Thu Nov 10, 2005 9:01 am Post subject:
Re: Inflation protected bonds |
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"Loose On the Lead" <dts2172-ng@yahoo.com> wrote in message
| Quote: | Funny you should write that after misspelling your own name.
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It is trying to get past filters. |
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Ed
Guest
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| Posted:
Thu Nov 10, 2005 9:01 am Post subject:
Re: Inflation protected bonds |
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"Ell" <elle_navorski@earthlink.net> wrote in message
news:jCAcf.2276$Id6.1830@newsread1.news.pas.earthlink.net...
| Quote: | "Loose On the Lead" <dts2172-ng@yahoo.com> wrote
Ell wrote:
"Loose On the Lead" <dts2172-ng@yahoo.com> wrote
rono wrote:
Actually with a bond fund, you are more exposed to inflation risk
than
if you actually held the bond from issue to maturity.
This is a myth. Bonds behave the same way outside a fund as they do
inside. If you hold to maturity, you don't see a loss on paper, but
that doesn't mean you haven't lost something in real terms.
And this is incredibly poor writing.
Funny you should write that after misspelling your own name.
You are dull.
Bonds held to maturity: Principal is returned.
Bonds held in a fund: Principal is not necessarily returned.
That's wonderful, as long as all you care about is getting your
principal back. Some people are more interested in long-term total
return, in which case holding a bond to maturity is not always the best
course of action.
This is such crap.
It can be the best course of action. There's simply no telling in advance.
Plus it depends on the individual's goals.
And that brings me to the inflation issue, which I
forgot to address directly the first time around. A bond held in a
mutual fund is the same as a bond held individually. When a bond in a
mutual fund is sold, the sale presumably takes place because the
manager thinks he can improve returns by holding a different bond. If
the manager is right, then clearly the fund keeps up with inflation
better than the original bond would have on its own. If he's wrong, it
doesn't.
This is woefully misguided or just flat out bullshit.
The structure of investment grade bond funds is much more constrained than
stock mutual funds. Duration of a certain length is sought. A certain
quality (investment grade or closer to junk, for example) of bond is
sought.
Running such funds is much more mechanical than running non-index stock
mutual funds.
Regarding TIPS, Rono and Darkness are right. TIPS behavior is
complicated.
The markets are complicated, period.
TIPS bond funds follow investment grade bond funds of similar duration.
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Ed
Guest
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| Posted:
Thu Nov 10, 2005 9:01 am Post subject:
Re: Inflation protected bonds |
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"Gary C" <Clem_Kadiddlehopper@Crazy_Googinheimer.com> wrote
| Quote: | It is trying to get past filters.
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She has this name thing. Maybe she thinks Ell is sexier than Elle. I think
she is is not sexy. |
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Gary C
Guest
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| Posted:
Thu Nov 10, 2005 5:00 pm Post subject:
Re: Inflation protected bonds |
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"Ed" <friday@fishinthe.net> wrote in message
news:11n60ocdp92og9e@corp.supernews.com...
| Quote: |
"Gary C" <Clem_Kadiddlehopper@Crazy_Googinheimer.com> wrote
It is trying to get past filters.
She has this name thing. Maybe she thinks Ell is sexier than Elle. I think
she is is not sexy.
|
Can you confirm *it* as being a *she*?
Elle McPherson, you can confirm a she.
Elle McPherson, you can confirm as sexy TOO! :-)
http://images.google.com/images?q=%20Elle%20McPherson%20&hl=en&lr=&sa=N&tab=wi |
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Loose On the Lead
Guest
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| Posted:
Thu Nov 10, 2005 5:00 pm Post subject:
Re: Inflation protected bonds |
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Ed wrote:
| Quote: | Maybe she thinks Ell is sexier than Elle. I think
she is is not sexy.
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I wish someone did.
Darin |
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Ed
Guest
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| Posted:
Thu Nov 10, 2005 5:00 pm Post subject:
Re: Inflation protected bonds |
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"Gary C" <Clem_Kadiddlehopper@Crazy_Googinheimer.com> wrote
| Quote: | Can you confirm *it* as being a *she*?
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I'm 90% confident. She is very jealous of males, doesn't like them at all
but wishes incesantly that she was one. |
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Ed
Guest
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| Posted:
Thu Nov 10, 2005 5:00 pm Post subject:
Re: Inflation protected bonds |
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"Loose On the Lead" <dts2172-ng@yahoo.com> wrote in message
news:1131624094.843288.326000@f14g2000cwb.googlegroups.com...
| Quote: |
Ed wrote:
Maybe she thinks Ell is sexier than Elle. I think
she is is not sexy.
I wish someone did.
Darin
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I have heard that there is someone for eveyone but then there are the
exceptions. I think there is no hope for her. |
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Gary C
Guest
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| Posted:
Thu Nov 10, 2005 5:00 pm Post subject:
Re: Inflation protected bonds |
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"Ed" <friday@fishinthe.net> wrote in message
news:11n6dt03vanlfd3@corp.supernews.com...
| Quote: | but wishes incesantly that she was one.
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See! .... that's what I mean.
I'll just run with "shim"
Half she, half him :-) |
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rono
Guest
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| Posted:
Thu Nov 10, 2005 5:00 pm Post subject:
Re: Inflation protected bonds |
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Darin,
I think we're saying the same thing, although I might have mistated it.
Rising rate risk doesn't apply to a bond held to maturity - only to a
bond bought or sold before maturity. To the extent that a fund holds
their bonds to maturity, rising rates don't impact principal. Where
they do have an impact is that you'd rather have a fund full of higher
paying bonds than lesser paying ones.
As for inflation risk per se', you're correct that it's the same for
older bonds regardless of where how you invest in them - in a rising
inflation environment, your principal will be worth less in the future
than it is today.
best,
rono |
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darkness39
Guest
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| Posted:
Thu Nov 10, 2005 5:00 pm Post subject:
Re: Inflation protected bonds |
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Is the other difference a fund keeps buying and selling bonds to
maintain a certain duration?
Whereas holding a single bond, your duration is always falling (as you
get closer to maturity)? |
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darkness39
Guest
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| Posted:
Thu Nov 10, 2005 5:00 pm Post subject:
Re: Inflation protected bonds |
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Loose On the Lead wrote:
| Quote: | rono wrote:
Actually with a bond fund, you are more exposed to inflation risk than
if you actually held the bond from issue to maturity.
This is a myth. Bonds behave the same way outside a fund as they do
inside. If you hold to maturity, you don't see a loss on paper, but
that doesn't mean you haven't lost something in real terms.
Darin
|
Loss on holding a nominal, coupon bond to maturity if interest rates
rise.
1. lost opportunity to invest previous coupons at higher interest
rates. Effedtively, I think , this is called 'duration risk'?
2. assuming inflation is flat, no other loss
Is my analysis correct? |
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Loose On the Lead
Guest
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| Posted:
Thu Nov 10, 2005 5:00 pm Post subject:
Re: Inflation protected bonds |
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rono wrote:
| Quote: | I think we're saying the same thing, although I might have mistated it.
Rising rate risk doesn't apply to a bond held to maturity - only to a
bond bought or sold before maturity. To the extent that a fund holds
their bonds to maturity, rising rates don't impact principal. Where
they do have an impact is that you'd rather have a fund full of higher
paying bonds than lesser paying ones.
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Oh, sorry. Then we do agree.
Darin |
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Loose On the Lead
Guest
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| Posted:
Thu Nov 10, 2005 5:00 pm Post subject:
Re: Inflation protected bonds |
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darkness39 wrote:
| Quote: | Loss on holding a nominal, coupon bond to maturity if interest rates
rise.
1. lost opportunity to invest previous coupons at higher interest
rates. Effedtively, I think , this is called 'duration risk'?
2. assuming inflation is flat, no other loss
Is my analysis correct?
|
I think so, but I'm not sure about "duration risk". I think duration
risk is the familiar notion that if rates change by x percent, and the
duration of a bond is D, then the price of the bond changes by about
Dx. What you describe in (1) is about interest, not price. I can't
think of what it's called, if it even has a name. It's definitely an
opportunity cost.
Darin |
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Mark Freeland
Guest
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| Posted:
Sun Nov 13, 2005 5:00 pm Post subject:
Re: Inflation protected bonds |
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Loose On the Lead wrote:
| Quote: |
darkness39 wrote:
Loss on holding a nominal, coupon bond to maturity if interest rates
rise.
1. lost opportunity to invest previous coupons at higher interest
rates. Effedtively, I think , this is called 'duration risk'?
2. assuming inflation is flat, no other loss
Is my analysis correct?
I think so, but I'm not sure about "duration risk". I think duration
risk is the familiar notion that if rates change by x percent, and the
duration of a bond is D, then the price of the bond changes by about
Dx. What you describe in (1) is about interest, not price. I can't
think of what it's called, if it even has a name. It's definitely an
opportunity cost.
Darin
|
It's "reinvestment risk" - the risk that you won't be able to get the
same (or better) interest with the coupon payments. If one is using the
bond for income (i.e. spending the payments as they come in), this is
not an issue. That's one way to "immunize" against reinvestment risk.
Another way is to buy zeros for your target date.
You might "hold[] ... a bond to maturity", but be left holding a
worthless piece of paper if the company folds; or the company might just
be late in making payments. Either way, there's still credit risk.
--
Mark Freeland
nNeEwTs@sonic.net |
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