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Simulating a 10 year Treasury in ETF form

Posted: Fri Oct 04, 2019 11:56 am
by jeffreyalan
If I wanted to get as close as possible to a constant 10 year Treasury in ETF form, how would I divvy up these ETFS?

IEF 7-10 Treasury has an avg maturity of 8.49 years and an avg duration of 7.59 years

TLH 10-20 Treasury has an avg maturity of 16.97 years and an avg duration of 12.50 years

Do I weight the durations or the maturities?

Re: Simulating a 10 year Treasury in ETF form

Posted: Fri Oct 04, 2019 3:01 pm
by vineviz
jeffreyalan wrote:
Fri Oct 04, 2019 11:56 am
If I wanted to get as close as possible to a constant 10 year Treasury in ETF form, how would I divvy up these ETFS?
Why do you want to do this?

Re: Simulating a 10 year Treasury in ETF form

Posted: Fri Oct 04, 2019 4:23 pm
by nisiprius
If you have a brokerage that sells ETFs, it probably sells Treasurys, too. I've bought them both at auction and on the secondary market, both ways, at Fidelity and at Vanguard. The process isn't hard. I believe that currently both Vanguard and Fidelity allow you to buy them at auction, or in the secondary market, with no fee.

Re: Simulating a 10 year Treasury in ETF form

Posted: Fri Oct 04, 2019 4:28 pm
by jebmke
nisiprius wrote:
Fri Oct 04, 2019 4:23 pm
If you have a brokerage that sells ETFs, it probably sells Treasurys, too. I've bought them both at auction and on the secondary market, both ways, at Fidelity and at Vanguard. The process isn't hard. I believe that currently both Vanguard and Fidelity allow you to buy them at auction, or in the secondary market, with no fee.
I think VG is no fee even for non-Flagship. They are easy to buy and sell.

Re: Simulating a 10 year Treasury in ETF form

Posted: Fri Oct 04, 2019 5:05 pm
by patrick013
jeffreyalan wrote:
Fri Oct 04, 2019 11:56 am

Do I weight the durations or the maturities?

VFIUX is as close to a 10 year bond ladder as I can find.

However an actual ladder can be more flexible. Buying short or long term as the market may show in any given time period. I was going to buy over 10 year maturity's when rates reached 4%. But the uncertain economy led to rate reduction. Back to laddering I go.

Those holding LT should find a good time to sell LT TRSY funds presently to realize cap gains. When rates rise a year or 2 from now those cap gains will disappear.

So the ladder becomes a 5 or 10 year ladder based on market guessing. But can become a 20 or 30 year ladder when rates are acceptable to do so. I don't use duration. That is just a misname of the yield to maturity formula. From the ladder jump to higher maturities as rates become better or stay within the ladder maturity structure.

Re: Simulating a 10 year Treasury in ETF form

Posted: Sat Oct 05, 2019 3:33 am
by Klewles
I think the OP is asking how to mimic the 10-year constant maturity Treasury (CMT) that is quoted daily. "As close as possible" depends on your criteria. One choice would be to match the (McAulay) duration, which you do by weighting the durations of the ETFs.

For example, today's quote of the 10-year Treasury (CMT) is 1.52%. That works out to a duration of 9.31 years (using https://www.investopedia.com/calculator ... cdate.aspx with yield = rate = 1.52%). You can match that using 65% IEF and 35% TLH, since 0.65 * 7.59 + 0.35 * 12.50 = 9.31.