The Great Bond Sell Off: What Does it Mean?
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- เผยแพร่เมื่อ 5 มิ.ย. 2024
- There are lots of headlines about bonds selling off. So in this video, I look at the drivers behind this selloff and where yields might be heading. I also discuss whether this has created any buying opportunities for us and what it means for stocks.
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Timestamps
00:00 Introductions
00:36 Selloff
02:56 Bond losses
05:32 Opportunities
07:01 Forecast
08:37 Selloff Reasons
14:42 Stocks less attractive
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DISCLAIMER
All information is given for educational purposes and is not financial advice. Ramin does not provide recommendations and is not responsible for investment actions taken by viewers. Figures that are quoted refer to the past and past performance is not a reliable indicator of future results.
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I wonder how many people commute home learning about bonds with ramin.. 💪
I was eating ramen while listening to Ramin, that must count...for smth😅
I do@@MagicNash89 .
I can see that there are some bargains in UK bonds, but unfortunately there’s currency risk involved for me, which probably cancels out whatever advantage there is
Great video....thanks! As a US based equities investor, I love when yields go up. It hammers stocks....especially staples and utilities. When you buy at a discount, it's like the coupon on a bond.
I bought Vanguard Intermediate-Term Investment Grade fund yesterday with 30-day SEC yld 5.76%. Had been thinking it over for a while, have not seen yields this high in over 10 years on these bond funds. Might add the US Treasury fund with a lower yield, still 4.46%. Have to get more cash out of the checking account.
Great video as always. Factual and insightful
Much appreciated @davidwalsh9807
Excellent video Ramin. Thank you!
Glad you enjoyed it @davidpearce4838
Very good level headed conversation of all the cross currents. Subscribed.
Thank you @fhowland
I'm slightly wary of a mass bond sell off in the future so buying at one level above junk fells a little risky. E.g. if there is a rise in non-payments due to higher rates, some companies may get downgraded, even the ones that are ok, forcing them to refinance at a higher rates which they might not be able to afford, so they default on some payments, making them get downgraded more, and tipping more into the junk bucket. If a bond is no longer investment grade it can't be held by certain institutions, they will just be forced to sell it...
Thanks. So...what are you suggesting to do?
Hes so happy about the Recession coming in, like hes super excited to be witnessing it.
I wish I could follow you completly 😎
Thanks for the video Rami. Bonds are for mugs, why would I want to lend someone money, rather invest in businesses as an owner. If you really want have low returns, get a cash ISA or follow the bank rate through multiple cash funds.
Unless you have used all you allowances and want to save on capital gains . Then not buying is a mugs game
Do you know if bank bonds are covered by the Financial Services Compensation, which i think is 85k?
Thank you Ramin. Does Pension Craft have a tracker for US/USD (UCITS) bonds?
Not at the moment @videohooligan We show some US Treasury ETFs in our Market Monitor (Cross Asset Returns) but these are US listed ETFs.
3 months tbill currently 5.5. Stocks are range bound. Turning the allocation dial to favor bonds.
May be an interesting watch. I'm not saying you're wrong as investing is pretty much 100% situational and goal driven.
I knew that was gonna be your forecast when you mentioned it at the start 😂😂
Thanks👍👍
Q for you (all, incl Ramin). Does the EOY (Dec-31) in the U.S. result in tax-loss selling on UK Gilts? Forgive me if this sounds silly, but there must be substantial U.S. institutional holding of U.K. gilts, therefore you would expect a little sell-off around early December. Well? ?
Conversely, is there a U.K. -based selloff around late March to align with Blighty's crazy April-5 EOY? Same issue - only a proportion (dunno how big) of holders will be paying UK taxes aligned to April-5th.
? (again)
I have a SIPP with Vanguard and want a Global Bond to invest in to offset my stocks - any thoughts
How much lower do you think TLT will go? Below 80 possible ? Loved your video content, very informative.
It's 90 one month after your message
At 12:00 when they issue more debt ie should not increase supply and push the yield down ?
Ramin, I think you're the best macro strategist on social media. Thank you so much for this video. Excellent content as always
I appreciate that! @blhlow4904
It’s been a quite strange observation on YT channels in these two years, the KOLs keep pushing people to “invest” in bonds. Today, bond prices explain. I wonder eventually how this drama would be ended up…those odd lots “bond issuers” in secondary market are NOT government, counter party risk cannot be underestimated.
I just learned a lot today. Tomorrow im gonna be economist.
Bonds should be great in the medium term. If there is a current sell off, I suspect that it is an even better buying opportunity.
Wow market discounts on UK bonds are not taxable in the UK - that’s better than in the USA. Here market discounts on bonds in excess of diminis are taxed as income when the bond matures (unless on elects to amortize them over time).
00:04 The Great Bond sell-off has resulted in higher yields and falling prices.
02:05 The US yield curve has rapidly moved upwards, with the long end of the curve reaching its lowest point ever in March 2020.
04:12 Investors should consider the duration of bonds for potential losses.
06:18 The bond yields are lower at the short end of the curve and have increased at the longer end.
08:18 Bond sell off can be an opportunity to lock in higher yields.
10:27 The Great Bond Sell Off is influenced by Middle East conflict, quantitative tightening, and the supply of treasuries.
12:29 Higher US nominal GDP is pushing yields higher.
14:33 The earnings yield for stocks is lower than the yield on some bonds, making US stocks less attractive.
Is this not just setting the bond market up for a huge rally when interest rates start coming down?
A huge rally in price yes, but as the price goes up the yield in the market will go down proportionally.
I am buying the fear.......
Er, yes, and there's much, much more. Bond-proxies are very interesting and IMHO loony-oversold. DYOR GLA xxx.
Yes, that's why I have been buying TLT like crazy recently. Feels like we are close to peak fear!
Are we entering an international sovereign debt crisis where governments will continue to feed inflation with money printing and bond yields will trail inflation and bank held long term bond values continue to dive and be the reason for the next major bank run?
THIS used to be one of my most watched YT channels... sadly, it's been a while since i visited it has been a very rough year... i am experiencing one of the toughest phases of my life... Lost a fortune lnvesting in emerging companies. Hopeful, for a turnaround.
Net interest is the most important measure when considering bonds. Whats the point of locking your money away for 20 years when you potentially seeing the collapse of the currency under unsustainable sovereign debt, more money printing and resultant inflation likely to outstrip your bond coupon payments? FIAT currencies are unravelling due to unsustainable bond issuance at higher rates!
It's funny how financial markets look so familiar to electronic engineers... that interest rate chart looks like an RF Delta Trace. I saw years ago how house prices looks like a Divergent Phugoid.
Crazy all these amazon token posts.
High quality medium duration seems sensible as rate cycles peak. You can lock in 5-6٪ and restore a 80/20 or 60/40 allocation where bonds do their job if equity sells off. Mortgage backed securities, ultra high quality investment grade and some asian EM bond are looking like once in a lifetime chance to diversify your portfolios asset class
Draw downs do matter, it's the same as your home losing value on your home that you are planning on living in forever.
They both limit your financing opportunities if the need arises, since loans are based off of LTV.
As Munger would say, there are always opportunity costs to consider. While you may not lose by holding to maturity, you could be losing out on gains in other potential investments.
A question, so Who Is selling all this bonds? And on the other side, Who Is Buying...governments are selling due to QT and Banks/funds are Buying? Thanks for any reply
Government. Buyers are mainly pension funds.
I bought bonds directly and will hold till maturity mostly 1 year but some 2 and 3, in fact over half my portfolio is in uk bonds now,
Been a long time coming but im finally getting some income after i started investing 2 to 3 years or so ago, my stock portfolio is literally worth the same as i paid for it at the start .
I dont feel confident in long term bonds though, so as each bond matures it will mostly go into stocks again.
Hi, I wonder which platform do you use to buy UK gilts directly.
@@k0023382 I wonder that too and also wonder why government did not make it easier for average citizen. I guess selling government's debt should be in its best interest.
Interactive Investor and HL for me for gilts
The moment everyone is talking about bond sell off, you know it’s the best time to go to trading platforms and buy TLT 🤑
People have been saying that since March. Just look at the inflows. Been a very efficient capital incinerator.
Can anyone clarify that the 9% for the T26 bond will be received in 2 years and few months. How would this be better than a 2 year fixed saving paying 6% per year, for a basic rate tax payer?
T26..a very high probability it will be repaid at 100 par. For a basic rate taxpayer, in terms of return, there's little difference from a return point of view. It's attractive for higher rate taxpayers and taxpayers who have filled their ISAs and have taxable savings which generate over £1k interest. So, it's down to risk level. Who is more likely to default on repayment, the UK government or the alternative? There is also the ability to sell T26 quickly if funds were unexpectedly needed whereas you might be locked into a no access 2 year bond with a building society (6% level).
very high probability....can't say 100% but the UK has never defaulted .....unlike the US!
@@monabri7387 Thanks for the detailed explanation.
Bond holders got hit hard by interest rate hikes ?
I bought lots of short term low interest gilts -tax free
T26 Gilt is a great buy for higher rate taxpayers who have already used up their ISA allowances
Please elaborate?
@@richardmason6263There are gilts with a low coupon (e.g. 0.125%) so little income tax to pay. Capital gains on gilts are tax free. The gilt might sell for under £91 but will be redeemed at £100 at maturity in 2026.
Gains on uk gilts for uk investors are tax free. The lower the interest (coupon) which is taxable the better and have this in the form of a. “Guaranteed” capital gain. Even if you need the income T26 still makes sense as it only has a short time to run and will payout a guaranteed sum - buy at 92 matures at 100. If income is needed now take the equivalent from Cash Reserves and replenish this at Maturity. For a higher rate taxpayer a Net yield of 4% is the equivalent to over 6.5%. Risk is limited to UK Government going bust or failing to pay interest - if either happens we will have far greater things to worry about!
So oil stock should move higher
I want to hear more from Gilt Spice
Why am I incapable of understanding bonds, I understand stock and capital growth and dividends but don't. Is it the yield curve that is an unnecessary complex jargon or what? You lend money you get a IO you get the yield (like a dividend) each month? until the duration of the agreement 1y,3y,5y,20y etc. then you get your money back. but What is this about losses how can someone be down 40%. Why when the yield goes up does the price go down? how can the price even move. I though it was a lend you £1 you give me 5% and £1 back at the end so what has gone down 40%
As long as you hold the bond to maturity, then it is as you say. You buy a 10year gilt you pay £1 get the 5% for the duration and then get your £1 back. During those 10 years the price will rise and fall based on market forces as people buy and sell, as long as you hold on until maturity you are fine, however if you need to cash in for any reason then you will only get what the market is prepared to pay. So that could be more than the £1 you paid or it could be less. The longer the duration the more volatile it is likely to be.
Say that next Monday you buy a gilt with a 'par' value of 100 for 90 and it matures in Jan 2026. In Jan 2026 your bond, bought for 90, is paid at 100. In the meantime you also get the 'coupon", usually paid every 6 months. Coupons can range from around 0.125% to around 4.25% depending on which bond you buyand might determine which gilt you purchase and where you hold it (ISA or taxable account) Those coupons are based on you having bought at 100....but YOU bought at 90. Hence you will receive , over the year, a payment of 100/90 x the coupon yield , an extra 11% ( eg coupon rate x 1.11).
In the interest of keeping it simple, that's an overview with no discussion on clean v dirty price and no consideration regarding index linked gilts.
Don't worry I understand nothing as well yet I am fairly good at economics usually. It is a strange market with lots of regulations and jargons. Sovereign is even worse. Only a few big players that keep the whole thing as obscure as possible. I don't see the point for an individual to mingle in it.
an increase from 1% to 2% yield will hurt bonds more than a 10 to 11% increase.
Well, well a draw down in excess of 30% in Government Bonds is mind boggling especially if you factor in the dire state of government finances globally. The trend in interest rates is up globally and no end in sight so far. I would therefore caution to go "all in" because governments have the nasty option to ged rid of excessive debt by letting inflation run which they will obviously not declare but do anyway. But it's hard and close to impossible to not get burned in this situation as rising yield basically hurt any asset with a long duration and like bonds equities and real estate have a long duration too. To me "cash is king" as long as interest rates continue to rise but down the road this will likely create juicy investment opportunities.
Cash is a guaranteed loss due to exactly the inflation you mention. It doesn't pay a dividend. It doesn't do any work, it doesn't make anything. And almost every government constantly produces more of it to relentlessly dilute its value. My grandparents house was bought for less than 1k. Today to buy the same house needs around 400k. That's uk inflation and I'm not even old enough to get a pension yet.
@@LurchLures Let me remind you that TLT (tracker US Treasury Bonds with a long duration) is down roughly 50% (!!!) since the peak and falling still. Holding cash was and still is a comparatively much better position to hold for about 2 years in a row. Wish you good luck!
Who wants to lend money to the bottomless pit that is the UK treasury?! 🤔
I think the bond sell-off is in anticipation of higher inflation and higher rates from the fed.
Locking into GBP isn't risk free. GBP fell 1% against the USD today. 1% fall in a single day.
So hedge the FX risk with a forward and pocket the yield 🤷
@@thomasbiley5463 How do you do that within a pension?
Interest rates were kept artificially low for years. Pension funds had to buy the bonds. Now they have Hugh losses on their investments. Not good news for those receiving pensions.
They will simply hold to maturity.
Add, Japón and China are selling bonds
👍
TLT has gone up 7% last month!
It certainly means that bonds should not be called fixed income.
If you hold them to maturity then it’s fixed right ?
@@musheopeaus4125 and when does exactly your bond fund mature?
Incisive and erudite, as ever. Thanks, Ramin.
Thanks @JohanTetzel
So much for bonds being safer than stocks. Even the worst stock market crashes are less than 50 percent. And the yields are terrible. And buying bonds directly is difficult.
100% agree. And I am bitter towards many financial blogs/youtube channels presenting bonds as a relatively safe asset class. I guess 40 years of falling interest rates was enough to create widespread bias.
Most laughable to me are Inflation linked Gilt funds. They fell spectacularly during the period of high inflation. So the asset that potentially should protect you from certain event did the opposite.
@@pistopit7142I got done as well, thought in 2021 that moving into index linked funds would help when inflation eventually picked up (money being printed and splashed around like no tomorrow - what could *possibly* go wrong?). Lost more than if I just left everything alone.
Buying bonds is difficult.?.no, I just log on to my trading account , select the bond, enter the value and press "buy".
Bond selling, is getting ready for the impeding crash, so people are ready for cheep stock bargains. also your getting competitive rates in the bank, without losing money and not having to wait for maturity.
There is one country that will benefit from Iranian sanctions and that is India. India already has a good supply from Russia so add Iran to the mix, it will be good for their economy. The Indian stock market has done fantastically well. I would expect it to outperform SPX, over the next 5 yrs.
Yes, India has been performing well. My trading seminar group follows the ETF: INDA. There's also the ETF: INDY for India's nifty 50.
If you are getting out of bonds you're right. There's certain bonds that have claimed to be secured but are not. Word is spreading and if enough people find out it will create a self sustaining chain reaction that could ruin certain sectors.
Despite the fact that bond yields are rising while stock prices are falling. What is the greatest strategy to take advantage of the current market. I’m still deciding whether to diversify my $400k stocks portfolio?
The great mobico sell off
Appallingly simplistic coverage, as always. Keep focusing on underperforming ETFs and trackers, and what ultimately are junk bonds. Perhaps you could explain to your viewers how a spendthrift government of a deindustrialsed nation will ever repay its almost £3tn of debt.
What planet are you on , he not here to tell the sad story of our nations fall . You watching the wrong channel son .
Which under performing etfs or index funds are you referring to. Vanguard ftse developed world etf appears to have delivered good returns over last 5 yrs or more, and same for other global index, etfs, plus S&P 500 trackers have done very well since about 2009
lend money to bankrupt government sounds like a stupid idea....
Bonds aren't destroyed, for every buyer there is a seller. So there can be no net "sell off ". All we can say is that prices have fallen.
Very misleading title....
It's Liz Truss what did it!
It means that some mug is buying them.
please no lipstick
Broke boomers
why dont you wear a dress
Don't forget to use Chapstick (or similar) as your mouth always looks really dry!
👍