Bogle (Sept 2012):time to create Total Corpor Bond Indx Fund

[lindisfarne]

I searched & couldn't find any mention of this; I found it interesting.

http://money-markets-blog.amazon.com/po ... Index-Fund
Bogle (Sept 2012):
"CAVEAT: If there is a weakness to the case for the all-bond-market-index funds, it is that Barclay’s Aggregate Bond Index itself is so heavily weighted by U.S. Treasury and agency securities and federally backed mortgage bonds (GNMAs). In 1986, in the first annual report of the Vanguard’s bond index, I noted that U.S.-government-backed bonds accounted for 77 percent of assets. In the Fund’s most recent annual report, it was only slightly lower, at 72 percent. With Treasury yields recently near their lowest levels since the 1940s—just 1.6 percent for the 10-year Treasury note—the risk of rising rates cannot be ignored.
So it’s time to create yet another bond index fund, a Total Corporate Bond Index Fund. Its estimated yield in September 2012 is 3.0 percent, versus 1.7 percent for the Total Bond Market Index Fund. A corporate bond index fund would be useful to investors who require higher income without assuming undue risk. An investor who transferred, say, half of his bond holdings in the total bond index portfolio into an investment-grade corporate bond portfolio would still have a 35 percent position in U.S. government securities. As low interest rates continue for the foreseeable future, and spreads between corporates and Treasurys remain at current levels, it can only be a matter of time until a total corporate bond index fund is made available to investors."

Another interesting comment:
http://www.indexuniverse.com/sections/i ... =1&start=5
Ludwig: And you’re presumably talking about the short end of the yield curve too if you’re going to take that position?

Bogle: I don’t like the short end at all. I mean, for money market funds, short is fine. But I think you’re going to almost guarantee a better payoff in the intermediate term than you are in short term. Short-term bond yields are probably less than 1 percent. Intermediates are probably 2.75 percent, something like that. But if you’re willing to go out about 15 years, have a heavier investment in corporate bonds, because I’m really concerned about governments because they produce such a small income.

[dkturner]

Mr. Bogle's comments on the Amazon blog might be unsettling to many of the posters here who love the Vanguard Total Bond Index Fund. The strategy he outlines represents a huge "tilt" away from US government bonds and into lower quality securities. For some of the Bogleheads it would be like spotting Mr. B in the high stakes area of the Bellagio.

My only questions for Jack would be: Where were you in late 2008 and early 2009 when high quality corporate bonds were trading at record spreads over US government securities? Why unveil this plan now after 4 years of extraordinary returns for high quality corporate bonds?

[Tom_T]

There was a thread on this subject back in September.

viewtopic.php?f=10&t=103263&p=1499829&hilit=bogle+tbm#p1499829

[Doc]

How about this index:
"Bar CapU.S. Corporate Index"

Or this one:

"BofA Merrill Lynch US Corporate Index ETF List"

and how about a fund to go with them:

"http://etfs.morningstar.com/quote?pgid=hetopquote&t=CORP"

[Beagler]

My only questions for Jack would be: Where were you in late 2008 and early 2009 when high quality corporate bonds were trading at record spreads over US government securities? Why unveil this plan now after 4 years of extraordinary returns for high quality corporate bonds?

Mr. Bogle in 2007
"I like the (taxable) IT bond index fund because it provides more stability than the LT index fund, and more income than the ST index fund. The Total Bond Market Index Fund is fine, but I vaguely wonder about a bond fund that has 35% of its portfolio in non-bonds (i.e., GNMA securities, with their risk of being prepaid early, when interest rates tumble)." http://johncbogle.com/wordpress/2007/06 ... estions-2/

[dkturner]

My only questions for Jack would be: Where were you in late 2008 and early 2009 when high quality corporate bonds were trading at record spreads over US government securities? Why unveil this plan now after 4 years of extraordinary returns for high quality corporate bonds?

Mr. Bogle in 2007
"I like the (taxable) IT bond index fund because it provides more stability than the LT index fund, and more income than the ST index fund. The Total Bond Market Index Fund is fine, but I vaguely wonder about a bond fund that has 35% of its portfolio in non-bonds (i.e., GNMA securities, with their risk of being prepaid early, when interest rates tumble)." http://johncbogle.com/wordpress/2007/06 ... estions-2/

Remember Mr. B is, currently, talking about a 35% allocation to US Government debt. I-T Bond Index has a 52% allocation to government debt. That's a big slug of bonds issued by a single AA debtor. I'd prefer greater diversification myself.

Stay the course - but tack to port or starboard when it seems like a good idea.

[Grandpaboys]

I was in Long Term Investment Grade starting in 1990. I did very well, but in 2008 and early 2009 I decided to reduce my duration by going to Intermediate and Short term investment grade funds. I now have very large Capital Gains in these to funds. If I sell I do not know where to invest the procedes to equal the income I receive now. If the NAV of these two funds ever got to the lows of 2008 & 2009 again I would back of the truck. I would like to reap my gains but not until I have a good replacement. I guess staying the course is my only option unless someone can give me a magic bullet.

[dkturner]

I was in Long Term Investment Grade starting in 1990. I did very well, but in 2008 and early 2009 I decided to reduce my duration by going to Intermediate and Short term investment grade funds. I now have very large Capital Gains in these to funds. If I sell I do not know where to invest the procedes to equal the income I receive now. If the NAV of these two funds ever got to the lows of 2008 & 2009 again I would back of the truck. I would like to reap my gains but not until I have a good replacement. I guess staying the course is my only option unless someone can give me a magic bullet.

You're looking to de-risk your portfolio while the OP references a blog by John Bogle pushing a plan to increase portfolio risk (move bond holdings to lower quality and longer duration).