Global bond ETF - does it still make sense?

Hi,
my long term portfolio is quite simple and quite exposed to bonds
50% global bond ETF ( DBZB )
50% stocs (IWDA)

At the beginning of 2022 , when the bonds started to drop, I remember reading an article stating that the drop is caused by the increase of the interest rate/inflation.

It seems that the interest rates will continue to increase until 2023/2024, so does that mean that the negative trend will continue until the interest rate stabilises?

What does the experts say ? I was just wondering if it stupid to keep bonds at this point in time. Do you believe there is a chance they will bounce back in the medium term (3-4 years?).

Thanks

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Bonds volatility will be lower than stocks.
So if a huge recession hit in 2023, sending your etf to -50% you should expect your bond allocation to have a much lower drawdown like -15%.
We do not know the amount invested but this projected losses could tell you if you will handle it well or not.

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yes, that aspect make sense but the point is that the bond market reacted so drastically…
When the bond dropped substantially in mid 2016 the stocks were flying though.
Comparison stocks/global bond.

Only invest in things you understand… I’m sorry, but that is bonds 101, interest rate goes up → bond prices go down.

As interest rates rise, the NAV of your bond fund goes down, but its yield rises. Over time, the increased interest payments from the individual bonds within the fund will compensate the loss of NAV, and ultimately outweigh it.

I like this topic insightfully started by nisiprius on the bogleheads boards to try and understand it: Short- and longer-term effects of rising interest rates on a bond fund - Bogleheads.org

Long story short, it’s important to take the duration of our bond funds into account when choosing them, and not expect stable value or positive returns on a duration shorter than the bond fund duration (or 2D-1 if dealing with multiple constant raises).

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interest rate went up in the past but the result was different , with an acceptable % drop . This is a big exception

thanks, that seems like a good thread to read

While we are here… What are alternatives to this?

I am also dissappointed by my Bond ETFs which where supposed to be the stable part. But that is not the case with bond funds because they don’t just hold the bonds till they expire.

Like this they are more speculation on the interest rates, than small but stable profits.

(And a similar thing with REIT ETFs. I wanted something that represented the value of local real estate, but instead I got speculation on the interest rate for mortgages…)

I don’t have an answer…
If you look at the low risk profile in the link below, apparently there are competitors who did much better…so we might want know who are those competitors

Can you image you have a couple of years left to retirement, and your capital drops 15%?..that’s not nice.

Liability matched individual bonds or medium term notes (Kassenobligationen), or savings accounts.

Higher returns mean higher risk. No market risk, no credit risk and no duration risk means cash.

Edit: just to note: individual bonds prices also drop when interest rates rise, it’s just that they get back to face value as they near their maturity date. Bond funds also auto-correct and claw their NAV back with time, it’s just that since we can’t hold them to “maturity”, it’s harder to match their duration with our expected liabilities. Short term liabilities (nearing retirement) would warrant a shortening of duration of the bond fund, which would in turn reduce its sensitivity to interest rates.

I thought they are always kept to an average duration… thus representing the value of a bond that is always maturing in X years (but never gets there)… which is kinda bad.

This depends on the fund. Index funds typically track all bonds with a term to maturity within a predefined range. E.g. “iShares Swiss Domestic Government Bond 7-15” tracks Swiss Gov Bonds that mature in 7-15 years. The weighted average maturity will vary a bit.

However, there are also bond funds that track all maturities (e.g. all bonds with a certain minimum credit rating) and bond funds where the maturity range starts at 0 (or something very short such as 1 month). With such bond funds, the performance should be close to holding individual bonds to maturity, except that the fund will keep buying new bonds as they are issued or fall into the predefined maturity range. Not suitable for liability matching, though.

I’m wondering, what kind of bond allocation would you recommend for a 50 year drawdown FIRE portfolio (60/40)? Withdrawing monthly from the best-performing funds.

I was thinking of an equal weight allocation:
10% long term treasuries
10% intermediate term treasuries
10% short term treasuries
10% cash

Or might I aswell just buy a total bond market fund like BNDW (CHF-hedged, of course)?

I’m not sure I like the idea of non-rolling bond ladders / liability-matching, because they don’t give me diversification from my stock allocation. And that’s the whole idea behind safe withdrawal rate research according to Bengen, ERN etc. Or am I wrong?