Think government bonds are a safe bet?

[TexasHusker]

They are, until they aren't. As it turns out, public debt can be magically invalidated by a judge, leaving the bond investor with nothing but a piece of paper:

https://www.yahoo.com/finance/news/board-seeks-invalidate-6b-worth-125112473.html

[corn18]

It's Puerto Rican bonds. Surely you are not implying those are in the same category as US government bonds? (please insert ref to Leslie Nielsen here)

[TexasHusker]

It's Puerto Rican bonds. Surely you are not implying those are in the same category as US government bonds? (please insert ref to Leslie Nielsen here)

Of course not. But Puerto Rico is a US territory. Scary stuff. And don’t call me Shirley

[kork13]

Trust me, "US Territory" mostly just means that they've got a big brother that will have your back if the school bully comes at you, and shares lunch money with you when you're broke.

I grew up in Guam, and status as a territory means little. Territories are run independently, are without a voice in the mainland US, and are wholesale ignored until a natural disaster hits, or some crime or corruption is so severe that the FBI has to get involved. Honestly, the umbrella of protection from territorial status probably encourages more disfunction than if they were independent countries.

All of that to say that a US Territory and the US itself are in no way correlaries of each other. Not even remotely.

[disneysteve]

wholesale ignored until a natural disaster hits

And in the case of Puerto Rico, still ignored even then, as we saw with the hurricane not long ago.

So no, I would not lump a Puerto Rico bond in with US Government bonds. There's also a difference between local or state bonds and Federal bonds.

[TexasHusker]

And in the case of Puerto Rico, still ignored even then, as we saw with the hurricane not long ago.

So no, I would not lump a Puerto Rico bond in with US Government bonds. There's also a difference between local or state bonds and Federal bonds.

I’m still trying to figure out where I lumped a Puerto Rico bond with a US government bind.

[disneysteve]

I’m still trying to figure out where I lumped a Puerto Rico bond with a US government bind.

You didn't. I was just saying that when you say "Think government bonds are a safe bet?" it's important to know which government you're talking about. There's a big difference between a government bond issued by the US Fed and one issued in Puerto Rico or Brazil or Kosovo. I think US Fed bonds are very safe; the others, not so much.

[TexasHusker]

more interesting reading:

https://seekingalpha.com/article/4066127-municipal-defaults-rare-occur

[Fishindude77]

I'm on the board of a bank. Excess funds that aren't being used for lending are invested exclusively in high quality government bonds and those have performed well. It's usually stuff like bonds for school expansions, municipal buildings, local airports, water treatment plants, etc., etc.
I'm not smart enough to tell you how to do it, but there are ways to evaluate the quality of the bonds.

[disneysteve]

more interesting reading:

https://seekingalpha.com/article/406...lts-rare-occur

Good article that really emphasizes the extreme safety of municipal bonds. Overall default rate of only 0.09% over a 46-year period and ZERO defaults of investment-grade bonds (Aaa and Aa rated). General Obligation bonds had only 9 defaults in 46 years a rate of 0.003%, though the info about troubled pension plans is interesting.

So yes, I do think the vast majority of US Government bonds are ultra safe, as this article documents.

[corn18]

They are, until they aren't. As it turns out, public debt can be magically invalidated by a judge, leaving the bond investor with nothing but a piece of paper:

https://www.yahoo.com/finance/news/b...125112473.html

You are right, some government debt is very risky. Ask the folks who bought bonds in Venezuela when oil was $100 a barrel. Many people seek higher returns by buying riskier government bonds. Sometimes it works, sometimes it doesn't. As with all investments, assess your risk tolerance and fully understand exactly what you are buying.

Mr. Bogle kept me straight with a total US bond market index fund. Bond funds seem to scare people when interest rates are rising. While the NAV goes down, the yield goes up. So just pick an average duration that matches your timeline. For me, the FIDO total bond index fund (FTBFX) has an average duration of 5.63 years. So, yields should catch up to falling NAV in 5.63 years, so total return will be net net compared to interest rates that stayed the same.

I keep my short term savings in a short term treasury fund with a 30 day SEC yield of 1.83% and an average duration of 90 days, so not a lot of interest rate risk there.

Once I retire, I will probably roll my entire 401k into my TSP and buy the G fund. As long as they don't change the way they calculate the yield, that fund has the yield of a total bond fund with a duration of 3 years with zero NAV risk. Very unique and perfect for my fixed income in retirement.

[disneysteve]

I don't know if it's still true but I believe Suze Orman used to say that her portfolio was entirely in government bonds - individual bonds not a bond fund. She did that because she had all the money she could ever need and the bonds are extremely safe and secure. She didn't have to worry about losing her nest egg in the stock market and the default risk is virtually zero (as discussed in that article above).