Rising Bond Yields

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Duffydog1
Posts: 66
Joined: Sat Dec 03, 2016 12:42 pm

Rising Bond Yields

Post by Duffydog1 »

I am following the rising bond yields nearing 3% and also slowly increasing CD rate which in a few cases are over 2% for a 1 year CD. My question is how do we participate in the 10 year Treasury without purchasing the actual bonds. Is the short term VG bond fund the way to go? Unfortunately as the rates increase the value of the bonds go down?
dbr
Posts: 46137
Joined: Sun Mar 04, 2007 8:50 am

Re: Rising Bond Yields

Post by dbr »

Ten years is more than than the Vanguard Intermediate Treasury fund but not by a lot. That would be a choice. Keep in mind that if you buy a 10 year bond at auction today the maturity shortens down to zero as you hold the bond. A fund maintains constant maturity. As rates increase your holding could fall some and eventually rise higher than it would have if rates had been constant, depending on exactly how interest rates change over time.

I think a better plan for the long term investor is to make up your mind about an asset allocation, buy it, and stick to the plan. Holding bonds in funds is convenient and efficient.
livesoft
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Joined: Thu Mar 01, 2007 7:00 pm

Re: Rising Bond Yields

Post by livesoft »

Perhaps you can buy the TIAA Traditional Annuity?
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aristotelian
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Joined: Wed Jan 11, 2017 7:05 pm

Re: Rising Bond Yields

Post by aristotelian »

You could buy the iShares 7-10 Year Treasury ETF (IEF). Average duration is 7.44 years and yield is up to 2.66%, a little bit higher duration and yield than Vanguard Intermediate Treasury (VGIT)It's a much better deal now than it was a couple of months ago, but of course, there is risk that the price will continue to decline as the yield goes up.

You could also just buy Vanguard Total Bond Market which will include some allocation of intermediate term Treasury bonds.
Random Walker
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Joined: Fri Feb 23, 2007 7:21 pm

Re: Rising Bond Yields

Post by Random Walker »

This a chance to recommend a great and easy to read book: Why Bother With Bonds by Rick Van Ness. It is my favorite bond book by far. One definition of bond duration is the point at which the investor is indifferent to changes in interest rate. If rates rise and bond prices fall, if the investor continues to reinvest dividends at the new higher interest rate, he will be indifferent to the decrease in bond price at time equal to duration. Duration is always less than maturity.

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ps56k
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Location: Chicago area

Re: Rising Bond Yields

Post by ps56k »

It will be interesting to see how the portfolio of Total Bond Index changes.... vs the 10yr bond - the fund avg is about 8.4 yrs
https://personal.vanguard.com/us/FundsS ... true#tab=2

Distribution by effective maturity (% of fund) as of 01/31/2018
Total Bond Mkt Index Inv
Under 1 Year 0.6%
1 - 3 Years 22.7%
3 - 5 Years 19.8%
5 - 10 Years 39.7%
10 - 20 Years 3.9%
20 - 30 Years 12.7%
Over 30 Years 0.6%
Total 100.0%
pascalwager
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Joined: Mon Oct 31, 2011 8:36 pm

Re: Rising Bond Yields

Post by pascalwager »

A barbell of VG 35% long-term treasury index and 65% short-term treasury index would provide an overall 10 year maturity.
VT 60% / VFSUX 20% / TIPS 20%
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