BIV Question
BIV Question
I recognize BIV is an index based bond ETF. Does Vanguard hold the individual bonds to maturity? I am attempting to assess the impact of interest rate increases on this fund. Thanks!
-
- Posts: 11647
- Joined: Sat Oct 04, 2008 11:42 am
Re: BIV Question
Here's a link to Vanguard's page on bond fund duration:
https://investor.vanguard.com/insights/ ... s-duration
https://investor.vanguard.com/insights/ ... s-duration
BIV's average duration is 6.5yrs.Vanguard wrote:Duration is useful in measuring a bond fund's sensitivity to changes in interest rates. The longer the duration, the more a bond fund's price will fluctuate when interest rates change.
To estimate how a change in interest rates can affect the share price of a bond fund, multiply the fund's duration by the change in rates. If a fund's average duration is 2.5 years, a 1-percentage-point rise in interest rates would lead to an estimated 2.5% decline in the share price. A 1-percentage-point decline in rates would cause an estimated 2.5% rise in the share price.
Last edited by DSInvestor on Sun Jun 25, 2017 9:59 pm, edited 1 time in total.
Re: BIV Question
It does not. From Vanguard's website: "Seeks to track the investment return of the Bloomberg Barclays U.S. 5–10 Year Government/Credit Float Adjusted Index, a market-weighted bond index that covers investment-grade bonds with a dollar-weighted average maturity of 5 to 10 years."
https://personal.vanguard.com/us/funds/ ... IntExt=INT
So, once a bond hits the 4.9 years to maturity mark it is sold. Probably it is replaced with a new 10 year bond.
That being said, you need to think how increasing interest are going to happen. Both BIV and Vanguard Total Bond Index have a duration of about 6. BIV's duration is a bullet duration - all of that duration risk is concentrated in a single point. Total Bond, basically, holds it bonds to maturity. It's duration is level. If interest rates rise in a parallel fashion it does not matter which one. If long term rates rise faster than short term rates then it does matter.
https://personal.vanguard.com/us/funds/ ... IntExt=INT
So, once a bond hits the 4.9 years to maturity mark it is sold. Probably it is replaced with a new 10 year bond.
That being said, you need to think how increasing interest are going to happen. Both BIV and Vanguard Total Bond Index have a duration of about 6. BIV's duration is a bullet duration - all of that duration risk is concentrated in a single point. Total Bond, basically, holds it bonds to maturity. It's duration is level. If interest rates rise in a parallel fashion it does not matter which one. If long term rates rise faster than short term rates then it does matter.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
Re: BIV Question
No. Essentially what it does is buy bonds that have 10 year of maturity left and then hold them until they have 5 years of maturity remaining. That is what is meant by it tracking a "5-10 year" index.Does Vanguard hold the individual bonds to maturity
Re: BIV Question
You can also see this by looking at the distribution by maturity in the Portfolio & Management tab, which shows that 96.7% of the bonds are in the 5-10 year range.
Kevin
Kevin
If I make a calculation error, #Cruncher probably will let me know.
Re: BIV Question
Perhaps closer to that would be iShares Intermediate Government/Credit Bond ETF (GVI), which follows a 1-10 yr index. So it, like most bond funds (including the total bond index funds, yes), sells bonds prior to maturity. But the coverage goes down a lot further into the short term than BIV does.
- patrick013
- Posts: 3301
- Joined: Mon Jul 13, 2015 7:49 pm
Re: BIV Question
BIV will have 100% new bonds every 5 years, at least bought for the fund. It shouldmarshall wrote: I am attempting to assess the impact of interest rate increases on this fund.
stay as one of the top performing funds.
age in bonds, buy-and-hold, 10 year business cycle
Re: BIV Question
Thanks for the responses. Very helpful.