GNMA....Sell or hold

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Northern Flicker
Posts: 6496
Joined: Fri Apr 10, 2015 12:29 am

Re: GNMA....Sell or hold

Post by Northern Flicker »

From fidelity.com:

Historically, the incremental yield offered by GNMAs over Treasuries has more than compensated for the prepayment risk. For example, for the period from 1992 to 2012, the Barclays GNMA Index outperformed duration-matched Treasuries by an average of 0.35% per year.
Last edited by Northern Flicker on Mon May 18, 2020 3:19 pm, edited 1 time in total.
Register44
Posts: 103
Joined: Sun Feb 09, 2020 12:30 pm

Re: GNMA....Sell or hold

Post by Register44 »

What do we think now? Seems like getting almost 2% vs .2% on treasuries is a really good deal. We are talking 10x return. Granted they are both small. I don't understand how the negative convexity works, and have heard it can't fully be modeled. But an assert fully backed by the credit and full faith seems it is equal in strength to treasuries, yet actually yields something right now.
Corgitodd
Posts: 53
Joined: Thu Mar 09, 2017 2:45 pm

Re: GNMA....Sell or hold

Post by Corgitodd »

To paraphrase Hamlet, to buy, sell or hold GNMA now, that is the question.
dcdowden
Posts: 216
Joined: Sun Sep 28, 2014 11:42 am

Re: GNMA....Sell or hold

Post by dcdowden »

I am interested in this subject as well. I was using CD's, but now their rates are so low that I did just rolled the money from a maturing CD into GNMA.
Valuethinker
Posts: 41146
Joined: Fri May 11, 2007 11:07 am

Re: GNMA....Sell or hold

Post by Valuethinker »

I think one can safely hold GNMAs.

If interest rates go up, then negative convexity will kick in, and they will underperform a straight US Treasury bond fund of equivalent duration.

However in the mean time, one will have had a higher yield, and still with full US Treasury guarantee on the bonds.
Alan S.
Posts: 9908
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: GNMA....Sell or hold

Post by Alan S. »

VG GNMA Admiral performance 2013-4/2020
Yield/ Total Return/ VG Prime MM Yield
2013 2.76/ -2.1/ .01
2014 2.70/ +6.8/ .01
2015 2.42/ +1.0/ .26
2016 2.45/ +1.9/ .66
2017 2.69/ +2.0/ 1.26
2018 2.91/ +1.0/ 2.37
2019 2.89/ +5.9/ 1.96
2020 YTD 2.65/ +3.6/ 1.96

While this period was generally one of rising interest rates, the first few years had stable low rates.
Total return trailed yield in 5 of 8 years.
Total return exceeded Prime MM in 6 of 8 years.
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