Bond Yields

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Topic Author
artbuc
Posts: 121
Joined: Tue Jun 27, 2023 8:22 pm

Bond Yields

Post by artbuc »

[Several duplicates of this post have been deleted. All responses to all posts are merged here. Moderator Pops1860]

Please explain these numbers. Vanguard VBTIX has 30 day SEC yield of 4.76% but current month, last 3 months and YTD are all negative. Thanks.
livesoft
Posts: 86369
Joined: Thu Mar 01, 2007 7:00 pm

Re: Bond Yields

Post by livesoft »

a. The yield per month is not 4.76%, but 1/12th of that I suppose.
b. Bond fund price dropped more in the past 3 months than any monthly dividend payments could overcome.
c. A bond fund is not a CD nor a money market fund nor a savings account.

Question for you: You do realize that Total Return is a sum of price movement and dividend payments, right?
Last edited by livesoft on Fri May 10, 2024 6:17 pm, edited 1 time in total.
Wiki This signature message sponsored by sscritic: Learn to fish.
User avatar
arcticpineapplecorp.
Posts: 15314
Joined: Tue Mar 06, 2012 8:22 pm

Re: Bond Yields

Post by arcticpineapplecorp. »

It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
muffins14
Posts: 5765
Joined: Wed Oct 26, 2016 4:14 am
Location: New York

Re: Bond Fund Yields

Post by muffins14 »

artbuc wrote: Fri May 10, 2024 6:16 pm Please explain these numbers. Vanguard VBTIX has 30 day SEC yield of 4.76% but current month, last 3 months and YTD are all negative. Thanks.
the SEC yield is forward looking. What you might expect to earn over the next 12 months if market rates stay the same

the last 3 months is backward looking over the last 3 months
the YTD is backward looking for the time from 1/1/2024 to today

If the share price of the fund has gone down because market rates rose, you can have a negative price movement relative to that 3mo and YTD baseline number that is perhaps more negative than the number of dollars paid to you in coupon payments
Crom laughs at your Four Winds
z3r0c00l
Posts: 3885
Joined: Fri Jul 06, 2012 11:43 am
Location: NYC

Re: Bond Fund Yields

Post by z3r0c00l »

Look at the share price. It moves, sometimes a few percent per year, in response to interest rate changes. A really bad year you might see -8% or so before inflation. A nightmare year perhaps -15% after inflation. This is why Vanguard rates it a 2 out of 5 on the risk and return scale.

https://www.google.com/search?q=VBTIX&r ... e&ie=UTF-8
70% Global Stocks / 30% Bonds
Topic Author
artbuc
Posts: 121
Joined: Tue Jun 27, 2023 8:22 pm

Re: Bond Fund Yields

Post by artbuc »

Thanks. So the 30 day SEC yield assumes constant NAV? Trying to understand bond fund behavior vs an individual bond.

Maybe this is a better way to ask. When we look at historical returns of stocks and bonds, we see annual percentages. Stocks are easy to understand, we are simply looking at the change in stock price without consideration to dividends. But what about a bond fund? Is the annual percentage return simply coupon payments or does it include changes in NAV?
User avatar
arcticpineapplecorp.
Posts: 15314
Joined: Tue Mar 06, 2012 8:22 pm

Re: Bond Fund Yields

Post by arcticpineapplecorp. »

artbuc wrote: Fri May 10, 2024 6:43 pm Thanks. So the 30 day SEC yield assumes constant NAV? Trying to understand bond fund behavior vs an individual bond.

Maybe this is a better way to ask. When we look at historical returns of stocks and bonds, we see annual percentages. Stocks are easy to understand, we are simply looking at the change in stock price without consideration to dividends. But what about a bond fund? Is the annual percentage return simply coupon payments or does it include changes in NAV?
why aren't you looking at consideration of dividends with regards to stocks? They're part of the total return.

Total return for stocks = capital appreciation + dividend
Total return for bonds = change in NAV + dividend
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
aristotelian
Posts: 12466
Joined: Wed Jan 11, 2017 7:05 pm

Re: Bond Fund Yields

Post by aristotelian »

artbuc wrote: Fri May 10, 2024 6:43 pm Thanks. So the 30 day SEC yield assumes constant NAV? Trying to understand bond fund behavior vs an individual bond.

Maybe this is a better way to ask. When we look at historical returns of stocks and bonds, we see annual percentages. Stocks are easy to understand, we are simply looking at the change in stock price without consideration to dividends. But what about a bond fund? Is the annual percentage return simply coupon payments or does it include changes in NAV?
SEC yield doesn't assume anything. It just is what it is. SEC yield is just the coupon payments; total return is coupon payments plus or minus change in value of the bond

There are some datasets that have total returns for stocks.
Topic Author
artbuc
Posts: 121
Joined: Tue Jun 27, 2023 8:22 pm

Re: Bond Fund Yields

Post by artbuc »

arcticpineapplecorp. wrote: Fri May 10, 2024 7:15 pm
artbuc wrote: Fri May 10, 2024 6:43 pm Thanks. So the 30 day SEC yield assumes constant NAV? Trying to understand bond fund behavior vs an individual bond.

Maybe this is a better way to ask. When we look at historical returns of stocks and bonds, we see annual percentages. Stocks are easy to understand, we are simply looking at the change in stock price without consideration to dividends. But what about a bond fund? Is the annual percentage return simply coupon payments or does it include changes in NAV?
why aren't you looking at consideration of dividends with regards to stocks? They're part of the total return.

Total return for stocks = capital appreciation + dividend
Total return for bonds = change in NAV + dividend
That was not my question. I am trying to understand convention. When people talk about historical returns on bonds, are they talking total or just yield? For example, look at the returns in the link. What are they? I assume the stock numbers exclude dividends but I am not sure. I also assume the bond numbers include yield and price but I am not sure.

https://awealthofcommonsense.com/2021/0 ... 1928-2020/
User avatar
arcticpineapplecorp.
Posts: 15314
Joined: Tue Mar 06, 2012 8:22 pm

Re: Bond Fund Yields

Post by arcticpineapplecorp. »

artbuc wrote: Fri May 10, 2024 7:52 pm
arcticpineapplecorp. wrote: Fri May 10, 2024 7:15 pm
artbuc wrote: Fri May 10, 2024 6:43 pm Thanks. So the 30 day SEC yield assumes constant NAV? Trying to understand bond fund behavior vs an individual bond.

Maybe this is a better way to ask. When we look at historical returns of stocks and bonds, we see annual percentages. Stocks are easy to understand, we are simply looking at the change in stock price without consideration to dividends. But what about a bond fund? Is the annual percentage return simply coupon payments or does it include changes in NAV?
why aren't you looking at consideration of dividends with regards to stocks? They're part of the total return.

Total return for stocks = capital appreciation + dividend
Total return for bonds = change in NAV + dividend
That was not my question. I am trying to understand convention. When people talk about historical returns on bonds, are they talking total or just yield? For example, look at the returns in the link. What are they? I assume the stock numbers exclude dividends but I am not sure. I also assume the bond numbers include yield and price but I am not sure.

https://awealthofcommonsense.com/2021/0 ... 1928-2020/
total return is what matters. why would you not include yield or dividends in your returns?

recent talking real money podcast with guest Mark Hebner (from index fund advisors) who gave some interesting results regarding total returns:
https://talkingrealmoney.com/talking-re ... atter-more
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
Topic Author
artbuc
Posts: 121
Joined: Tue Jun 27, 2023 8:22 pm

Re: Bond Yields

Post by artbuc »

Of course total return is what matters. That is not my question.
IDpilot
Posts: 365
Joined: Sat Dec 05, 2020 7:13 am

Re: Bond Fund Yields

Post by IDpilot »

aristotelian wrote: Fri May 10, 2024 7:47 pm
artbuc wrote: Fri May 10, 2024 6:43 pm Thanks. So the 30 day SEC yield assumes constant NAV? Trying to understand bond fund behavior vs an individual bond.

Maybe this is a better way to ask. When we look at historical returns of stocks and bonds, we see annual percentages. Stocks are easy to understand, we are simply looking at the change in stock price without consideration to dividends. But what about a bond fund? Is the annual percentage return simply coupon payments or does it include changes in NAV?
SEC yield doesn't assume anything. It just is what it is. SEC yield is just the coupon payments; total return is coupon payments plus or minus change in value of the bond

There are some datasets that have total returns for stocks.
My bold added. That is not correct.

SEC yield is based on a formula mandated by the Securities and Exchange Commission (SEC) that calculates a fund's hypothetical annualized income, as a percentage of its assets. A bond's interest income, for the purposes of this calculation, is based on the current market yield to maturity of the fund's holdings at the close of business of the last business day at the end of the month (assuming that the SEC Yield is calculated monthly). The fund’s income is determined by deducting the fund’s expenses and includes any waiver of reimbursement of expenses. Thus, the SEC yield has imbedded in it all the assumptions associated with the YTM calculation and includes much more than just the coupon payments.
IDpilot
Posts: 365
Joined: Sat Dec 05, 2020 7:13 am

Re: Bond Fund Yields

Post by IDpilot »

arcticpineapplecorp. wrote: Fri May 10, 2024 8:24 pm
artbuc wrote: Fri May 10, 2024 7:52 pm
arcticpineapplecorp. wrote: Fri May 10, 2024 7:15 pm
artbuc wrote: Fri May 10, 2024 6:43 pm Thanks. So the 30 day SEC yield assumes constant NAV? Trying to understand bond fund behavior vs an individual bond.

Maybe this is a better way to ask. When we look at historical returns of stocks and bonds, we see annual percentages. Stocks are easy to understand, we are simply looking at the change in stock price without consideration to dividends. But what about a bond fund? Is the annual percentage return simply coupon payments or does it include changes in NAV?
why aren't you looking at consideration of dividends with regards to stocks? They're part of the total return.

Total return for stocks = capital appreciation + dividend
Total return for bonds = change in NAV + dividend
That was not my question. I am trying to understand convention. When people talk about historical returns on bonds, are they talking total or just yield? For example, look at the returns in the link. What are they? I assume the stock numbers exclude dividends but I am not sure. I also assume the bond numbers include yield and price but I am not sure.

https://awealthofcommonsense.com/2021/0 ... 1928-2020/
total return is what matters. why would you not include yield or dividends in your returns?

recent talking real money podcast with guest Mark Hebner (from index fund advisors) who gave some interesting results regarding total returns:
https://talkingrealmoney.com/talking-re ... atter-more
Most knowledgeable investors and honest money managers when talking about historical returns will talk about total return. Thus, the stock and bond numbers will include price changes and dividends. Now since many investors aren't knowledgeable and some money managers are really just carnival barkers, when in doubt about what some source is talking about it is important that you make sure what values you are being presented and do your own due diligence.

The link you provided to a wealth of common sense is to a blog posting by Ben Carlson who is referencing date provided by NYU’s Aswath Damodaran. Damodaran is very explicit in his data that his stocks number is based on "S&P 500 (includes dividends)".
Auro
Posts: 15
Joined: Sat Sep 09, 2023 1:26 pm

Re: Bond Yields

Post by Auro »

artbuc wrote: Fri May 10, 2024 8:30 pm Of course total return is what matters. That is not my question.
The annual total return of a bond and a stock is the aggregate of both interest and dividend payments, and capital gains or losses.

Auro
aristotelian
Posts: 12466
Joined: Wed Jan 11, 2017 7:05 pm

Re: Bond Fund Yields

Post by aristotelian »

IDpilot wrote: Sat May 11, 2024 7:47 am
aristotelian wrote: Fri May 10, 2024 7:47 pm
artbuc wrote: Fri May 10, 2024 6:43 pm Thanks. So the 30 day SEC yield assumes constant NAV? Trying to understand bond fund behavior vs an individual bond.

Maybe this is a better way to ask. When we look at historical returns of stocks and bonds, we see annual percentages. Stocks are easy to understand, we are simply looking at the change in stock price without consideration to dividends. But what about a bond fund? Is the annual percentage return simply coupon payments or does it include changes in NAV?
SEC yield doesn't assume anything. It just is what it is. SEC yield is just the coupon payments; total return is coupon payments plus or minus change in value of the bond

There are some datasets that have total returns for stocks.
My bold added. That is not correct.

SEC yield is based on a formula mandated by the Securities and Exchange Commission (SEC) that calculates a fund's hypothetical annualized income, as a percentage of its assets. A bond's interest income, for the purposes of this calculation, is based on the current market yield to maturity of the fund's holdings at the close of business of the last business day at the end of the month (assuming that the SEC Yield is calculated monthly). The fund’s income is determined by deducting the fund’s expenses and includes any waiver of reimbursement of expenses. Thus, the SEC yield has imbedded in it all the assumptions associated with the YTM calculation and includes much more than just the coupon payments.
Fair enough. Yes, it is the yield net of expenses. But it does not include price fluctuations. That was my point.

Also if I understand correctly it is very accurate so I'm not sure assumptions is the right word. More like inputs. But you may correct me on that.
Eventually
Posts: 13
Joined: Mon Apr 24, 2023 11:27 am

Re: Bond Fund Yields

Post by Eventually »

artbuc wrote: Fri May 10, 2024 6:43 pm Thanks. So the 30 day SEC yield assumes constant NAV? Trying to understand bond fund behavior vs an individual bond.

Maybe this is a better way to ask. When we look at historical returns of stocks and bonds, we see annual percentages. Stocks are easy to understand, we are simply looking at the change in stock price without consideration to dividends. But what about a bond fund? Is the annual percentage return simply coupon payments or does it include changes in NAV?
artbuc wrote: Fri May 10, 2024 7:52 pm
That was not my question. I am trying to understand convention. When people talk about historical returns on bonds, are they talking total or just yield? For example, look at the returns in the link. What are they? I assume the stock numbers exclude dividends but I am not sure. I also assume the bond numbers include yield and price but I am not sure.

https://awealthofcommonsense.com/2021/0 ... 1928-2020/
artbuc wrote: Fri May 10, 2024 8:30 pm Of course total return is what matters. That is not my question.
Whether people are tracking total return or only some component of total return does, in fact, seem to be your question.
Topic Author
artbuc
Posts: 121
Joined: Tue Jun 27, 2023 8:22 pm

Re: Bond Yields

Post by artbuc »

Yes, that is my question. I now see that there is not a convention. I will have to dig deep to determine what the data means. Re the 30 day SEC yield on bond funds, I am not sure if that number is especially meaningful.
muffins14
Posts: 5765
Joined: Wed Oct 26, 2016 4:14 am
Location: New York

Re: Bond Yields

Post by muffins14 »

artbuc wrote: Sat May 11, 2024 12:02 pm Yes, that is my question. I now see that there is not a convention. I will have to dig deep to determine what the data means. Re the 30 day SEC yield on bond funds, I am not sure if that number is especially meaningful.
It is the most meaningful number because it tells you what you expect in the future. The past returns are not meaningful because they are in the past. I’m not sure what you mean about there not being a convention.

There is a current yield and a duration and that’s almost all you need to know for a bond. Decide on your desired duration, then decide if you want municipal or not. Or treasury vs corporate, US or international.

The SEC yield is what you use as the basis to then decide between two funds of similar duration and risk
Crom laughs at your Four Winds
IDpilot
Posts: 365
Joined: Sat Dec 05, 2020 7:13 am

Re: Bond Fund Yields

Post by IDpilot »

aristotelian wrote: Sat May 11, 2024 8:36 am
IDpilot wrote: Sat May 11, 2024 7:47 am
aristotelian wrote: Fri May 10, 2024 7:47 pm
artbuc wrote: Fri May 10, 2024 6:43 pm Thanks. So the 30 day SEC yield assumes constant NAV? Trying to understand bond fund behavior vs an individual bond.

Maybe this is a better way to ask. When we look at historical returns of stocks and bonds, we see annual percentages. Stocks are easy to understand, we are simply looking at the change in stock price without consideration to dividends. But what about a bond fund? Is the annual percentage return simply coupon payments or does it include changes in NAV?
SEC yield doesn't assume anything. It just is what it is. SEC yield is just the coupon payments; total return is coupon payments plus or minus change in value of the bond

There are some datasets that have total returns for stocks.
My bold added. That is not correct.

SEC yield is based on a formula mandated by the Securities and Exchange Commission (SEC) that calculates a fund's hypothetical annualized income, as a percentage of its assets. A bond's interest income, for the purposes of this calculation, is based on the current market yield to maturity of the fund's holdings at the close of business of the last business day at the end of the month (assuming that the SEC Yield is calculated monthly). The fund’s income is determined by deducting the fund’s expenses and includes any waiver of reimbursement of expenses. Thus, the SEC yield has imbedded in it all the assumptions associated with the YTM calculation and includes much more than just the coupon payments.
Fair enough. Yes, it is the yield net of expenses. But it does not include price fluctuations. That was my point.

Also if I understand correctly it is very accurate so I'm not sure assumptions is the right word. More like inputs. But you may correct me on that.
But the SEC Yield DOES include price fluctuations because the YTM does include the impact of the price of the bonds held in the bond fund may not be equal to par on the day that it is calculated.
Topic Author
artbuc
Posts: 121
Joined: Tue Jun 27, 2023 8:22 pm

Re: Bond Yields

Post by artbuc »

muffins14 wrote: Sat May 11, 2024 2:24 pm
artbuc wrote: Sat May 11, 2024 12:02 pm Yes, that is my question. I now see that there is not a convention. I will have to dig deep to determine what the data means. Re the 30 day SEC yield on bond funds, I am not sure if that number is especially meaningful.
It is the most meaningful number because it tells you what you expect in the future. The past returns are not meaningful because they are in the past. I’m not sure what you mean about there not being a convention.

There is a current yield and a duration and that’s almost all you need to know for a bond. Decide on your desired duration, then decide if you want municipal or not. Or treasury vs corporate, US or international.

The SEC yield is what you use as the basis to then decide between two funds of similar duration and risk
Ok, so the current 30 day SEC yield is 4.76% even though fund yield has been negative every month this year. If I buy $100k of this find on Monday, the balance on 12/31/2024 will be approximately $103k, right?
IDpilot
Posts: 365
Joined: Sat Dec 05, 2020 7:13 am

Re: Bond Yields

Post by IDpilot »

artbuc wrote: Sat May 11, 2024 3:31 pm
muffins14 wrote: Sat May 11, 2024 2:24 pm
artbuc wrote: Sat May 11, 2024 12:02 pm Yes, that is my question. I now see that there is not a convention. I will have to dig deep to determine what the data means. Re the 30 day SEC yield on bond funds, I am not sure if that number is especially meaningful.
It is the most meaningful number because it tells you what you expect in the future. The past returns are not meaningful because they are in the past. I’m not sure what you mean about there not being a convention.

There is a current yield and a duration and that’s almost all you need to know for a bond. Decide on your desired duration, then decide if you want municipal or not. Or treasury vs corporate, US or international.

The SEC yield is what you use as the basis to then decide between two funds of similar duration and risk
Ok, so the current 30 day SEC yield is 4.76% even though fund yield has been negative every month this year. If I buy $100k of this find on Monday, the balance on 12/31/2024 will be approximately $103k, right?
Be careful about saying WILL BE when talking about investing. There is almost always an IF involved. And in the case of the SEC Yield on a bond fund the most consequential "if" is that interest rates demand by the market don't change between now and 12/31/2024.
Topic Author
artbuc
Posts: 121
Joined: Tue Jun 27, 2023 8:22 pm

Re: Bond Yields

Post by artbuc »

Yep, believe me I know all about that possibility.
muffins14
Posts: 5765
Joined: Wed Oct 26, 2016 4:14 am
Location: New York

Re: Bond Yields

Post by muffins14 »

artbuc wrote: Sat May 11, 2024 3:31 pm
muffins14 wrote: Sat May 11, 2024 2:24 pm
artbuc wrote: Sat May 11, 2024 12:02 pm Yes, that is my question. I now see that there is not a convention. I will have to dig deep to determine what the data means. Re the 30 day SEC yield on bond funds, I am not sure if that number is especially meaningful.
It is the most meaningful number because it tells you what you expect in the future. The past returns are not meaningful because they are in the past. I’m not sure what you mean about there not being a convention.

There is a current yield and a duration and that’s almost all you need to know for a bond. Decide on your desired duration, then decide if you want municipal or not. Or treasury vs corporate, US or international.

The SEC yield is what you use as the basis to then decide between two funds of similar duration and risk
Ok, so the current 30 day SEC yield is 4.76% even though fund yield has been negative every month this year. If I buy $100k of this find on Monday, the balance on 12/31/2024 will be approximately $103k, right?
I think it would be more like: On 5/11/2025, the balance, with all coupon payments reinvested, would be $104.76k. *if there are no changes in market interest rates*. That is the best estimate you have, because no one can see into the future. It's possible that rates rise, and you have less than $100k. It's possible that rates fall and you have more then $110k. There is no way to know the future, the best you can do is make estimates.
Crom laughs at your Four Winds
Topic Author
artbuc
Posts: 121
Joined: Tue Jun 27, 2023 8:22 pm

Re: Bond Yields

Post by artbuc »

Thanks Muffin. I was just adding 7.5 months worth of coupons, but I get your point.
coachd50
Posts: 1866
Joined: Sun Oct 22, 2017 10:12 am

Re: Bond Yields

Post by coachd50 »

artbuc wrote: Sat May 11, 2024 3:31 pm
muffins14 wrote: Sat May 11, 2024 2:24 pm
artbuc wrote: Sat May 11, 2024 12:02 pm Yes, that is my question. I now see that there is not a convention. I will have to dig deep to determine what the data means. Re the 30 day SEC yield on bond funds, I am not sure if that number is especially meaningful.
It is the most meaningful number because it tells you what you expect in the future. The past returns are not meaningful because they are in the past. I’m not sure what you mean about there not being a convention.

There is a current yield and a duration and that’s almost all you need to know for a bond. Decide on your desired duration, then decide if you want municipal or not. Or treasury vs corporate, US or international.

The SEC yield is what you use as the basis to then decide between two funds of similar duration and risk
If I buy $100k of this find on Monday, the balance on 12/31/2024 will be approximately $103k, right?
No. That is not a good assumption to make.
If you are looking for a fairly certain value at a certain date in the future, a fund with the objective of maintaining an average effective maturity of about 8 years and an average duration of about 6 years is not what you should be looking at.
muffins14
Posts: 5765
Joined: Wed Oct 26, 2016 4:14 am
Location: New York

Re: Bond Yields

Post by muffins14 »

coachd50 wrote: Sat May 11, 2024 4:29 pm
artbuc wrote: Sat May 11, 2024 3:31 pm
muffins14 wrote: Sat May 11, 2024 2:24 pm
artbuc wrote: Sat May 11, 2024 12:02 pm Yes, that is my question. I now see that there is not a convention. I will have to dig deep to determine what the data means. Re the 30 day SEC yield on bond funds, I am not sure if that number is especially meaningful.
It is the most meaningful number because it tells you what you expect in the future. The past returns are not meaningful because they are in the past. I’m not sure what you mean about there not being a convention.

There is a current yield and a duration and that’s almost all you need to know for a bond. Decide on your desired duration, then decide if you want municipal or not. Or treasury vs corporate, US or international.

The SEC yield is what you use as the basis to then decide between two funds of similar duration and risk
If I buy $100k of this find on Monday, the balance on 12/31/2024 will be approximately $103k, right?
No. That is not a good assumption to make.
If you are looking for a fairly certain value at a certain date in the future, a fund with the objective of maintaining an average effective maturity of about 8 years and an average duration of about 6 years is not what you should be looking at.
I think it's an OK assumption. If you had to ask abut how much money would you have, 103k is a very reasonable answer. If you would drop dead or go bankrupt if you had $100k-$102k instead of $103k, then yes, this is a bad assumption.

I would estimate $103k before I would suggest the number would be 95k or 110k
Crom laughs at your Four Winds
coachd50
Posts: 1866
Joined: Sun Oct 22, 2017 10:12 am

Re: Bond Yields

Post by coachd50 »

muffins14 wrote: Sat May 11, 2024 4:31 pm
coachd50 wrote: Sat May 11, 2024 4:29 pm
artbuc wrote: Sat May 11, 2024 3:31 pm
muffins14 wrote: Sat May 11, 2024 2:24 pm
artbuc wrote: Sat May 11, 2024 12:02 pm Yes, that is my question. I now see that there is not a convention. I will have to dig deep to determine what the data means. Re the 30 day SEC yield on bond funds, I am not sure if that number is especially meaningful.
It is the most meaningful number because it tells you what you expect in the future. The past returns are not meaningful because they are in the past. I’m not sure what you mean about there not being a convention.

There is a current yield and a duration and that’s almost all you need to know for a bond. Decide on your desired duration, then decide if you want municipal or not. Or treasury vs corporate, US or international.

The SEC yield is what you use as the basis to then decide between two funds of similar duration and risk
If I buy $100k of this find on Monday, the balance on 12/31/2024 will be approximately $103k, right?
No. That is not a good assumption to make.
If you are looking for a fairly certain value at a certain date in the future, a fund with the objective of maintaining an average effective maturity of about 8 years and an average duration of about 6 years is not what you should be looking at.
I think it's an OK assumption. If you had to ask abut how much money would you have, 103k is a very reasonable answer. If you would drop dead or go bankrupt if you had $100k-$102k instead of $103k, then yes, this is a bad assumption.

I would estimate $103k before I would suggest the number would be 95k or 110k
We will have to agree to disagree here. Maybe it is a parsing of words. If you said you needed to make a prediction, sure 103 is a reasonable prediction, because it utilizes the information at hand. Any other prediction would make less sense if one believes in efficient markets and information.

But to assume that nothing will happen in the next 7 months that will change that? Not sure I would say it is a good assumption. Particularly given that since one is asking the question, then the outcome may matter.

The flood of "never again bond funds" type posts all have a similar theme--the forum members lamenting that they made investment decisions due to (false) assumptions about the nature of bond funds made from reading posts from this message forum.
Topic Author
artbuc
Posts: 121
Joined: Tue Jun 27, 2023 8:22 pm

Re: Bond Yields

Post by artbuc »

I am not concerned with predicting the outcome.Just trying to understand the definition of 30 day SEC yield.
muffins14
Posts: 5765
Joined: Wed Oct 26, 2016 4:14 am
Location: New York

Re: Bond Yields

Post by muffins14 »

artbuc wrote: Sat May 11, 2024 6:51 pm I am not concerned with predicting the outcome.Just trying to understand the definition of 30 day SEC yield.
It is the amount of money you would expect to have in 12 months if the market interest rates don’t change
Crom laughs at your Four Winds
alex_686
Posts: 13487
Joined: Mon Feb 09, 2015 1:39 pm

Re: Bond Yields

Post by alex_686 »

artbuc wrote: Sat May 11, 2024 6:51 pm I am not concerned with predicting the outcome.Just trying to understand the definition of 30 day SEC yield.
Know that for a bond “price” and “yield” are just two ways of saying the same thing. If you know the price you know the yield, if you know the yield the price.

The SEC Yield is the expected real economic return of the fund assuming prices are constant. That is, no shift in the rates. No change in the yield curve. The Federal Reserve makes announcements about the Fed Fund rate exactly like the market predicted.

I could go on.

Bonds get returns from two components.

The first is the coupon plus any discounts to par. This is pretty well known. This is what the SEC yield captures. It is a very high quality number.

The second is price appreciation/ depreciation. If interest rates increase then bond prices will fall. This is highly speculative. It isn’t captured by the SEC yield.

The key word here is “duration risk”. When you invest you are going to take on risk. There isn’t a good way to de-risk. Better to embrace it.

Ask me anything. I used to be a mutual fund account. Now bonds, kind of, are my day job.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
coachd50
Posts: 1866
Joined: Sun Oct 22, 2017 10:12 am

Re: Bond Yields

Post by coachd50 »

muffins14 wrote: Sat May 11, 2024 7:09 pm
artbuc wrote: Sat May 11, 2024 6:51 pm I am not concerned with predicting the outcome.Just trying to understand the definition of 30 day SEC yield.
It is the amount of money you would expect to have in 12 months if the market interest rates don’t change
Isn't it more accurate to say it is annualized rate of what you would expect as a return in 30 days if rates don't change? Not an argumentative question, but a sincere question.
Topic Author
artbuc
Posts: 121
Joined: Tue Jun 27, 2023 8:22 pm

Re: Bond Yields

Post by artbuc »

alex_686 wrote: Sat May 11, 2024 7:20 pm
artbuc wrote: Sat May 11, 2024 6:51 pm I am not concerned with predicting the outcome.Just trying to understand the definition of 30 day SEC yield.
Know that for a bond “price” and “yield” are just two ways of saying the same thing. If you know the price you know the yield, if you know the yield the price.

The SEC Yield is the expected real economic return of the fund assuming prices are constant. That is, no shift in the rates. No change in the yield curve. The Federal Reserve makes announcements about the Fed Fund rate exactly like the market predicted.

I could go on.

Bonds get returns from two components.

The first is the coupon plus any discounts to par. This is pretty well known. This is what the SEC yield captures. It is a very high quality number.

The second is price appreciation/ depreciation. If interest rates increase then bond prices will fall. This is highly speculative. It isn’t captured by the SEC yield.

The key word here is “duration risk”. When you invest you are going to take on risk. There isn’t a good way to de-risk. Better to embrace it.

Ask me anything. I used to be a mutual fund account. Now bonds, kind of, are my day job.
Precisely what I was looking for, thank-you. The second part of question had to do with reported gains of bonds and bond funds. I learned earlier in the thread that usually historical numbers are total, including price and coupon. However, that may not always be the case.
alex_686
Posts: 13487
Joined: Mon Feb 09, 2015 1:39 pm

Re: Bond Yields

Post by alex_686 »

artbuc wrote: Sat May 11, 2024 8:40 pm [quote=alex_686 post_i
Precisely what I was looking for, thank-you. The second part of question had to do with reported gains of bonds and bond funds. I learned earlier in the thread that usually historical numbers are total, including price and coupon. However, that may not always be the case.
The standard is to report returns with both price and dividends (coupons). If someone is reporting returns on just one or the other- well, they are probably breaking some regulation, being stupid, or trying to deceive you. Always start and focus on “total returns”.

For bond funds the best metric for expected total returns is the SEC yield. Couple that with “duration” for risk. That will get you a good chunk of the way there.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
muffins14
Posts: 5765
Joined: Wed Oct 26, 2016 4:14 am
Location: New York

Re: Bond Yields

Post by muffins14 »

coachd50 wrote: Sat May 11, 2024 7:48 pm
muffins14 wrote: Sat May 11, 2024 7:09 pm
artbuc wrote: Sat May 11, 2024 6:51 pm I am not concerned with predicting the outcome.Just trying to understand the definition of 30 day SEC yield.
It is the amount of money you would expect to have in 12 months if the market interest rates don’t change
Isn't it more accurate to say it is annualized rate of what you would expect as a return in 30 days if rates don't change? Not an argumentative question, but a sincere question.
Perhaps just semantics. I think if we are assuming no rate changes, a projection for 30 days then annualized would be mainly the same as a yearly projection
Crom laughs at your Four Winds
alex_686
Posts: 13487
Joined: Mon Feb 09, 2015 1:39 pm

Re: Bond Yields

Post by alex_686 »

muffins14 wrote: Sun May 12, 2024 9:23 am
coachd50 wrote: Sat May 11, 2024 7:48 pm
muffins14 wrote: Sat May 11, 2024 7:09 pm
artbuc wrote: Sat May 11, 2024 6:51 pm I am not concerned with predicting the outcome.Just trying to understand the definition of 30 day SEC yield.
It is the amount of money you would expect to have in 12 months if the market interest rates don’t change
Isn't it more accurate to say it is annualized rate of what you would expect as a return in 30 days if rates don't change? Not an argumentative question, but a sincere question.
Perhaps just semantics. I think if we are assuming no rate changes, a projection for 30 days then annualized would be mainly the same as a yearly projection
First, yeah, mostly semantics.

But this is the best way to think about it.

The market’s Total Returns estimate is the SEC yield. The SEC yield is truly a excellent value here.

With every estimate we need error bars. i.e. expected return = SEC Yield +/- risk percentage. a.k.a. a estimate of risk. Duration is the starting point here.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
Topic Author
artbuc
Posts: 121
Joined: Tue Jun 27, 2023 8:22 pm

Re: Bond Yields

Post by artbuc »

Please help me understand these numbers. In the Overview section, YTD return is - 1.85%. In the Performance and Fees section, YTD return is - 3.20%. Is it simply due to different cut-off dates, 5/11 vs 4/30? Thanks.

https://investor.vanguard.com/investmen ... file/vbtlx
metalworking
Posts: 379
Joined: Sun Jan 03, 2016 8:20 pm

Re: Bond Yields

Post by metalworking »

alex_686 wrote: Sun May 12, 2024 9:33 am
muffins14 wrote: Sun May 12, 2024 9:23 am
coachd50 wrote: Sat May 11, 2024 7:48 pm
muffins14 wrote: Sat May 11, 2024 7:09 pm
artbuc wrote: Sat May 11, 2024 6:51 pm I am not concerned with predicting the outcome.Just trying to understand the definition of 30 day SEC yield.
It is the amount of money you would expect to have in 12 months if the market interest rates don’t change
Isn't it more accurate to say it is annualized rate of what you would expect as a return in 30 days if rates don't change? Not an argumentative question, but a sincere question.
Perhaps just semantics. I think if we are assuming no rate changes, a projection for 30 days then annualized would be mainly the same as a yearly projection
First, yeah, mostly semantics.

But this is the best way to think about it.

The market’s Total Returns estimate is the SEC yield. The SEC yield is truly a excellent value here.

With every estimate we need error bars. i.e. expected return = SEC Yield +/- risk percentage. a.k.a. a estimate of risk. Duration is the starting point here.

Here is the difficulty I am having understanding the SEC yield. I have over 1 million in intermediate bond. I get less than 3000 a month in dividends and they are very very slowly increasing (less than 3.6%)If NAV stays the same and no large capital gain distribution there is no way I get close to the SEC yield. In the definition on Vanguard’s website it even says return can vary significantly from the yield. I still can’t wrap my head around why people find this number useful. Would love to finally understand what I am missing.
User avatar
ruralavalon
Posts: 26643
Joined: Sat Feb 02, 2008 9:29 am
Location: Illinois

Re: Bond Yields

Post by ruralavalon »

metalworking wrote: Mon May 13, 2024 6:02 am
alex_686 wrote: Sun May 12, 2024 9:33 am
muffins14 wrote: Sun May 12, 2024 9:23 am
coachd50 wrote: Sat May 11, 2024 7:48 pm
muffins14 wrote: Sat May 11, 2024 7:09 pm

It is the amount of money you would expect to have in 12 months if the market interest rates don’t change
Isn't it more accurate to say it is annualized rate of what you would expect as a return in 30 days if rates don't change? Not an argumentative question, but a sincere question.
Perhaps just semantics. I think if we are assuming no rate changes, a projection for 30 days then annualized would be mainly the same as a yearly projection
First, yeah, mostly semantics.

But this is the best way to think about it.

The market’s Total Returns estimate is the SEC yield. The SEC yield is truly a excellent value here.

With every estimate we need error bars. i.e. expected return = SEC Yield +/- risk percentage. a.k.a. a estimate of risk. Duration is the starting point here.

Here is the difficulty I am having understanding the SEC yield. I have over 1 million in intermediate bond. I get less than 3000 a month in dividends and they are very very slowly increasing (less than 3.6%)If NAV stays the same and no large capital gain distribution there is no way I get close to the SEC yield. In the definition on Vanguard’s website it even says return can vary significantly from the yield. I still can’t wrap my head around why people find this number useful. Would love to finally understand what I am missing.
SEC Yield is an annualized number, not a monthly number.

Many people (including me) believe that SEC Yield is the most reliable predictor of yield in the immediate future of a bond fund or money market fund.

It's also a reliable way to compare funds. SEC Yield is computed using a standard formula mandated by the Securities and Exchange Commission.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
exodusing
Posts: 2380
Joined: Thu Oct 13, 2022 7:32 am

Re: Bond Yields

Post by exodusing »

artbuc wrote: Sat May 11, 2024 6:51 pm I am not concerned with predicting the outcome.Just trying to understand the definition of 30 day SEC yield.
30 day SEC yield is the average yield to maturity of the fund's holdings over the past 30 days. Do you understand YTM? If not, see for example https://www.finra.org/investors/insight ... eld-return

For a long term holder, increased yield is good even if it means lower prices in the short run.
metalworking
Posts: 379
Joined: Sun Jan 03, 2016 8:20 pm

Re: Bond Yields

Post by metalworking »

ruralavalon wrote: Mon May 13, 2024 9:27 am
metalworking wrote: Mon May 13, 2024 6:02 am
alex_686 wrote: Sun May 12, 2024 9:33 am
muffins14 wrote: Sun May 12, 2024 9:23 am
coachd50 wrote: Sat May 11, 2024 7:48 pm

Isn't it more accurate to say it is annualized rate of what you would expect as a return in 30 days if rates don't change? Not an argumentative question, but a sincere question.
Perhaps just semantics. I think if we are assuming no rate changes, a projection for 30 days then annualized would be mainly the same as a yearly projection
First, yeah, mostly semantics.

But this is the best way to think about it.

The market’s Total Returns estimate is the SEC yield. The SEC yield is truly a excellent value here.

With every estimate we need error bars. i.e. expected return = SEC Yield +/- risk percentage. a.k.a. a estimate of risk. Duration is the starting point here.

Here is the difficulty I am having understanding the SEC yield. I have over 1 million in intermediate bond. I get less than 3000 a month in dividends and they are very very slowly increasing (less than 3.6%)If NAV stays the same and no large capital gain distribution there is no way I get close to the SEC yield. In the definition on Vanguard’s website it even says return can vary significantly from the yield. I still can’t wrap my head around why people find this number useful. Would love to finally understand what I am missing.
SEC Yield is an annualized number, not a monthly number.

Many people (including me) believe that SEC Yield is the most reliable predictor of yield in the immediate future of a bond fund or money market fund.

It's also a reliable way to compare funds. SEC Yield is computed using a standard formula mandated by the Securities and Exchange Commission.
Understand that but my annualized yield will almost certainly be WELL under even 4% at the rate of rise and I am reinvesting dividends. Maybe it’s the best metric we have but it is not even close in my real life scenario. Appreciate your time and input.
muffins14
Posts: 5765
Joined: Wed Oct 26, 2016 4:14 am
Location: New York

Re: Bond Yields

Post by muffins14 »

The return you get that is included in SEC yield is coupons and principle. For example you might have a bond that pays zero coupon but was bought at a discount that then gives you a return at maturity.

Why do you think your annual return will be “WELL” under 4% when it is already 3.6%? You are already almost at 4% from the recent yield alone.
Crom laughs at your Four Winds
muffins14
Posts: 5765
Joined: Wed Oct 26, 2016 4:14 am
Location: New York

Re: Bond Yields

Post by muffins14 »

artbuc wrote: Mon May 13, 2024 5:33 am Please help me understand these numbers. In the Overview section, YTD return is - 1.85%. In the Performance and Fees section, YTD return is - 3.20%. Is it simply due to different cut-off dates, 5/11 vs 4/30? Thanks.

https://investor.vanguard.com/investmen ... file/vbtlx
Probably. Yields have dropped recently so prices going up 1.4% seems reasonable to me
Crom laughs at your Four Winds
metalworking
Posts: 379
Joined: Sun Jan 03, 2016 8:20 pm

Re: Bond Yields

Post by metalworking »

muffins14 wrote: Mon May 13, 2024 10:23 am The return you get that is included in SEC yield is coupons and principle. For example you might have a bond that pays zero coupon but was bought at a discount that then gives you a return at maturity.

Why do you think your annual return will be “WELL” under 4% when it is already 3.6%? You are already almost at 4% from the recent yield alone.
I currently have $1,050,000 and have reinvested all dividends.
The April 2023 dividend was 2450 dollars and the April 2024 dividend was $2901. At this rate of rise even with invested dividends let’s say $50 dollars per month increase. That would put December 2024 dividend around generously $3350/month. So even in December 2024 my monthly yield would be 3.8% annualized and that does not even include the lower paying months prior to December. Unless I am missing something (entirely possible) a 4.7% annualized yield would require monthly dividends of $4112 dollars assuming no NAV change. Love to hear if I am missing something.
exodusing
Posts: 2380
Joined: Thu Oct 13, 2022 7:32 am

Re: Bond Yields

Post by exodusing »

metalworking wrote: Mon May 13, 2024 11:16 am
muffins14 wrote: Mon May 13, 2024 10:23 am The return you get that is included in SEC yield is coupons and principle. For example you might have a bond that pays zero coupon but was bought at a discount that then gives you a return at maturity.

Why do you think your annual return will be “WELL” under 4% when it is already 3.6%? You are already almost at 4% from the recent yield alone.
I currently have $1,050,000 and have reinvested all dividends.
The April 2023 dividend was 2450 dollars and the April 2024 dividend was $2901. At this rate of rise even with invested dividends let’s say $50 dollars per month increase. That would put December 2024 dividend around generously $3350/month. So even in December 2024 my monthly yield would be 3.8% annualized and that does not even include the lower paying months prior to December. Unless I am missing something (entirely possible) a 4.7% annualized yield would require monthly dividends of $4112 dollars assuming no NAV change. Love to hear if I am missing something.
Just to be clear, SEC yield and distribution yield (the amount you actually receive) are two different things. The numbers will not be the same.
metalworking
Posts: 379
Joined: Sun Jan 03, 2016 8:20 pm

Re: Bond Yields

Post by metalworking »

exodusing wrote: Mon May 13, 2024 11:54 am
metalworking wrote: Mon May 13, 2024 11:16 am
muffins14 wrote: Mon May 13, 2024 10:23 am The return you get that is included in SEC yield is coupons and principle. For example you might have a bond that pays zero coupon but was bought at a discount that then gives you a return at maturity.

Why do you think your annual return will be “WELL” under 4% when it is already 3.6%? You are already almost at 4% from the recent yield alone.
I currently have $1,050,000 and have reinvested all dividends.
The April 2023 dividend was 2450 dollars and the April 2024 dividend was $2901. At this rate of rise even with invested dividends let’s say $50 dollars per month increase. That would put December 2024 dividend around generously $3350/month. So even in December 2024 my monthly yield would be 3.8% annualized and that does not even include the lower paying months prior to December. Unless I am missing something (entirely possible) a 4.7% annualized yield would require monthly dividends of $4112 dollars assuming no NAV change. Love to hear if I am missing something.
Just to be clear, SEC yield and distribution yield (the amount you actually receive) are two different things. The numbers will not be the same.
Thanks and completely understand that. My understanding is people are saying that the SEC yield is the best indicator for annualized return over the next year. I believe my numbers support that it is not even close in my case without a large unpredictable change in NAV or else a big capital gain which the fund rarely distributes. I cant believe that no one else is seeing the same type of numbers I am. Maybe SEC yield only applies to newly purchased funds
Topic Author
artbuc
Posts: 121
Joined: Tue Jun 27, 2023 8:22 pm

Re: Bond Yields

Post by artbuc »

muffins14
Posts: 5765
Joined: Wed Oct 26, 2016 4:14 am
Location: New York

Re: Bond Yields

Post by muffins14 »

metalworking wrote: Mon May 13, 2024 1:00 pm
exodusing wrote: Mon May 13, 2024 11:54 am
metalworking wrote: Mon May 13, 2024 11:16 am
muffins14 wrote: Mon May 13, 2024 10:23 am The return you get that is included in SEC yield is coupons and principle. For example you might have a bond that pays zero coupon but was bought at a discount that then gives you a return at maturity.

Why do you think your annual return will be “WELL” under 4% when it is already 3.6%? You are already almost at 4% from the recent yield alone.
I currently have $1,050,000 and have reinvested all dividends.
The April 2023 dividend was 2450 dollars and the April 2024 dividend was $2901. At this rate of rise even with invested dividends let’s say $50 dollars per month increase. That would put December 2024 dividend around generously $3350/month. So even in December 2024 my monthly yield would be 3.8% annualized and that does not even include the lower paying months prior to December. Unless I am missing something (entirely possible) a 4.7% annualized yield would require monthly dividends of $4112 dollars assuming no NAV change. Love to hear if I am missing something.
Just to be clear, SEC yield and distribution yield (the amount you actually receive) are two different things. The numbers will not be the same.
Thanks and completely understand that. My understanding is people are saying that the SEC yield is the best indicator for annualized return over the next year. I believe my numbers support that it is not even close in my case without a large unpredictable change in NAV or else a big capital gain which the fund rarely distributes. I cant believe that no one else is seeing the same type of numbers I am. Maybe SEC yield only applies to newly purchased funds
Why are you convinced the yield and maturing bonds won't increase sufficiently to reach the SEC yield amount over time? The yield from 2023 is likely not indicative of the yield in 2024, 2025, because rates have risen
Crom laughs at your Four Winds
metalworking
Posts: 379
Joined: Sun Jan 03, 2016 8:20 pm

Re: Bond Yields

Post by metalworking »

I guess I’ll see next May but I’m not expecting it. :sharebeer
User avatar
Beensabu
Posts: 5894
Joined: Sun Aug 14, 2016 3:22 pm

Re: Bond Yields

Post by Beensabu »

Did that explanation make sense to you?

The SEC 30-day yield is just last month's effective yield annualized.

It doesn't estimate total return. Just likely annualized yield on an investment made now.

But if you only care about distributions, then it approximates the next year's worth of distributions close enough.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
Topic Author
artbuc
Posts: 121
Joined: Tue Jun 27, 2023 8:22 pm

Re: Bond Yields

Post by artbuc »

Here is good discussion of SEC yield vs distribution yield.

https://investor.vanguard.com/investor- ... bond-funds

Yes, it makes sense to me. SEC yield is a 30 lagging snapshot. Everyone uses same calculation so it is useful tool to compare funds. I would not count on it as a predictor during current times of an activist Fed.
Post Reply