Is total world bond safer than US treasuries?

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Blue456
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Is total world bond safer than US treasuries?

Post by Blue456 »

Seems like general consensus is that US treasuries are safer than bonds. But wouldn't total world bond be safer than US treasuries? I mean you are diversifying bonds among different countries.
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Re: Is total world bond safer than US treasuries?

Post by Caduceus »

Bonds are not like stocks. With bonds the key risk is credit risk. If you agree, as many do, that the U.S. has the least credit risk, then total world bond is not safer than 100% U.S. treasuries. The yield is a proximate marker for the market's assessment of the risk. For similar durations, international bonds usually offer more than US-equivalents.
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Re: Is total world bond safer than US treasuries?

Post by nisiprius »

If you look at a list of countries by credit rating, you will see that some have higher credit ratings than others. The United States has a very high credit rating. Three of the four ratings agencies give it the highest rating, AAA; S&P made news when it lowered the US' rating to AA+ some years ago--but the other raters don't agree, and, in any case, that is still very high.

Vanguard shows this for BNDW (under the Portfolio & Management tab):

U.S. Government 29.4%
Aaa 12.5%
Aa 15.9%
A 19.2%
Baa 23.0%

So, whether you regard U.S. Government as AAA or AA+, if you invest in BNDW you are putting 58% of your money into bonds that have lower credit quality than U.S. Treasuries.

Morningstar is showing BNDW as having an average credit quality of A, which they consider to be "mid" credit quality. They also consider it to have "extensive" interest rate risk.

Image

By comparison, the Vanguard Intermediate-Term Treasury fund, VFITX, is, as you'd expect, close to 100% U.S. government--Vanguard says 99.2%. Morningstar is showing VFITX with an average credit quality of AA, higher than BNDX, "high" credit quality, and "medium" interest rate risk.

Image

So, the two most common aspects of bond risk are credit quality and interest rate sensitivity, and by both measures BNDW is riskier than VFITX. But, they, they're both bonds--both investment-grade bonds--so they're both very low risk compared with just about any stocks.
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Blue456
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Re: Is total world bond safer than US treasuries?

Post by Blue456 »

Caduceus wrote: Thu Dec 26, 2019 9:37 pm Bonds are not like stocks. With bonds the key risk is credit risk. If you agree, as many do, that the U.S. has the least credit risk, then total world bond is not safer than 100% U.S. treasuries. The yield is a proximate marker for the market's assessment of the risk. For similar durations, international bonds usually offer more than US-equivalents.
But wouldn't spreading your risk in more than one country be safer? There are also 15 other countries with credit rating same or better than United States. Why not spread risk between those?
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Re: Is total world bond safer than US treasuries?

Post by Blue456 »

nisiprius wrote: Thu Dec 26, 2019 9:56 pm If you look at a list of countries by credit rating, you will see that some have higher credit ratings than others. The United States has a very high credit rating. Three of the four ratings agencies give it the highest rating, AAA; S&P made news when it lowered the US' rating to AA+ some years ago--but the other raters don't agree, and, in any case, that is still very high.

Vanguard shows this for BNDW (under the Portfolio & Management tab):

U.S. Government 29.4%
Aaa 12.5%
Aa 15.9%
A 19.2%
Baa 23.0%

So, whether you regard U.S. Government as AAA or AA+, if you invest in BNDW you are putting 58% of your money into bonds that have lower credit quality than U.S. Treasuries.

Morningstar is showing BNDW as having an average credit quality of A, which they consider to be "mid" credit quality. They also consider it to have "extensive" interest rate risk.

Image

By comparison, the Vanguard Intermediate-Term Treasury fund, VFITX, is, as you'd expect, close to 100% U.S. government--Vanguard says 99.2%. Morningstar is showing VFITX with an average credit quality of AA, higher than BNDX, "high" credit quality, and "medium" interest rate risk.

Image

So, the two most common aspects of bond risk are credit quality and interest rate sensitivity, and by both measures BNDW is riskier than VFITX. But, they, they're both bonds--both investment-grade bonds--so they're both very low risk compared with just about any stocks.
Thank you. That's actually pretty good comparison.
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Re: Is total world bond safer than US treasuries?

Post by mongstradamus »

Isn’t vsigx, the index version of intermediate treasuries , the closest you can get to 100 percent treasuries.
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Re: Is total world bond safer than US treasuries?

Post by Ferdinand2014 »

I would never invest in foreign bonds. My only fixed income are U.S. treasurys. I buy them directly at auction from Fidelity every week along with the S&P 500 index.
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Re: Is total world bond safer than US treasuries?

Post by rossington »

Where did you get the information that makes you think that adding ex-US bonds makes it safer than all Treasurys? (or even Total US Bonds for that matter).
I will never understand why anyone would consider this.
If you are concerned about diversifying in the bond sector international should not be a consideration.
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Re: Is total world bond safer than US treasuries?

Post by lazyday »

With equities, there can be a large benefit to total global diversification. With bonds, the benefit is probably small.

Vanguard research suggests a small benefit from global bond diversification, and the Vanguard Target Retirement funds hold bonds globally. For those who just own TR and don’t closely follow market returns, maybe it’s a good thing to have global bonds for a small potential reduction in volatility?

For those who separately own equity and fixed income, there may be a psychological benefit to just owning top quality US bonds and FDIC/NCUA accounts. William Bernstein has written on the benefit of owning very safe fixed income during terrible times, such as when stocks plummet. For example, short term Treasury bonds or a ladder of TIPS. Knowing your bonds, CDs, and/or bank accounts are safe might help one to stay the course.

David Swensen suggested 50/50 Treasuries and TIPS, which some might argue provides diversification you don’t get from Total Bond funds, US or global.
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Re: Is total world bond safer than US treasuries?

Post by bberris »

Blue456 wrote: Thu Dec 26, 2019 9:27 pm Seems like general consensus is that US treasuries are safer than bonds. But wouldn't total world bond be safer than US treasuries? I mean you are diversifying bonds among different countries.
When you go outside the US, you could be adding default risk in countries that don't have their own money (Portugal, Italy ...). In a highly rated country like Germany, this would be a small risk.

But all foreign countries have currency risk. Changes in relative value of money occur constantly. It's safer to have bonds in the currency that you plan to spend. You might argue that foreign equities also have currency risk. That is true, but not to the extent that bonds have exchange risk. Equities represent ownership in real assets, generally in businesses that work all over the world. Bonds are a future claim on money only.
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Re: Is total world bond safer than US treasuries?

Post by lazyday »

bberris wrote: Fri Dec 27, 2019 6:27 amBut all foreign countries have currency risk.
Vanguard's foreign and global bond funds hedge currency risk, or in the case of the EM bond fund as I recall it is US$ bonds only.

Some other bond funds don't hedge, and currency risk could be a problem. It could also be a benefit. Some have claimed that a little currency risk is beneficial for a portfolio, but you don't want too much. Owning foreign equity might be enough to get that benefit.
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Re: Is total world bond safer than US treasuries?

Post by RubyTuesday »

lazyday wrote: Fri Dec 27, 2019 6:57 am
bberris wrote: Fri Dec 27, 2019 6:27 amBut all foreign countries have currency risk.
Vanguard's foreign and global bond funds hedge currency risk, or in the case of the EM bond fund as I recall it is US$ bonds only.

Some other bond funds don't hedge, and currency risk could be a problem. It could also be a benefit. Some have claimed that a little currency risk is beneficial for a portfolio, but you don't want too much. Owning foreign equity might be enough to get that benefit.
Currency hedging has a cost. I wouldn’t avoid a Vanguard fund due to it using ex-US bonds, but I wouldn’t seek out ex-US bonds either. If I were living ex-US I would think more about the issue than I have. I tend to take more of Swensen/ Bernstein approach to fixed income.
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Re: Is total world bond safer than US treasuries?

Post by lazyday »

Some consider Treasury Bills to be perfectly safe. Zero risk.

Consider this portfolio:

Code: Select all

60% Total World Stock
40% T Bills
Can we reduce risk by switching to Total World Bond?

Clearly Total World Bond is not zero risk. But we should look at the whole portfolio. We might make the switch but reduce the stock allocation to less than 60%, so that the portfolio has the same expected return. So now we have this:

Code: Select all

60-X Total World Stock
40+X Total World Bond
Where we chose X to attempt to have the same expected return as the original portfolio.

Some would argue that this portfolio should theoretically have less risk than the original portfolio.

If we repeat this exercise using short term Treasuries instead of Bills, then I suspect that the risk reduction is small, and for some people not worth the psychological cost.

In today's world, I have doubts the portfolio with Total World Bond even is lower risk.
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Re: Is total world bond safer than US treasuries?

Post by bberris »

lazyday wrote: Fri Dec 27, 2019 6:57 am
bberris wrote: Fri Dec 27, 2019 6:27 amBut all foreign countries have currency risk.
Vanguard's foreign and global bond funds hedge currency risk, or in the case of the EM bond fund as I recall it is US$ bonds only.

Some other bond funds don't hedge, and currency risk could be a problem. It could also be a benefit. Some have claimed that a little currency risk is beneficial for a portfolio, but you don't want too much. Owning foreign equity might be enough to get that benefit.
You own bonds to reduce your risk. While you might enjoy an exchange rate gain, that is not the reason to own bonds.
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Re: Is total world bond safer than US treasuries?

Post by lazyday »

bberris wrote: Fri Dec 27, 2019 7:25 amYou own bonds to reduce your risk. While you might enjoy an exchange rate gain, that is not the reason to own bonds.
That might depend on the person.

I like having part of my portfolio in extremely safe fixed income. I will sometimes look at my fixed income in isolation from the rest of the portfolio. I don't want credit risk, high inflation risk, high real interest rate risk, or currency risk.

For someone who simply owns one fund and doesn't look too closely, perhaps it's worthwhile having some currency risk. Maybe the US dollar will fall at the same time stocks are falling, and the currency exposure will reduce downside volatility.

Vanguard hedges bond currencies anyway, so this probably isn't an issue for those deciding whether to hold foreign bonds with Vanguard funds.
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Re: Is total world bond safer than US treasuries?

Post by happysteward »

Interesting discussion, seems like a bond product people would be interested in would be "Total World AAA/Aaa" , are there such products? Still have to deal with currency risk (unless hedged) but it would offer "world" diversification at low credit risk.
But wouldn't spreading your risk in more than one country be safer? There are also 15 other countries with credit rating same or better than United States. Why not spread risk between those?
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Re: Is total world bond safer than US treasuries?

Post by longinvest »

Bonds aren't cash; they're marketable securities with a fluctuating market value. Diversifying one's bond exposure across the yield curves of investment-grade bonds in various countries (with currency hedging) dampens interest rate risk.
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Re: Is total world bond safer than US treasuries?

Post by wolf359 »

Blue456 wrote: Thu Dec 26, 2019 10:20 pm
Caduceus wrote: Thu Dec 26, 2019 9:37 pm Bonds are not like stocks. With bonds the key risk is credit risk. If you agree, as many do, that the U.S. has the least credit risk, then total world bond is not safer than 100% U.S. treasuries. The yield is a proximate marker for the market's assessment of the risk. For similar durations, international bonds usually offer more than US-equivalents.
But wouldn't spreading your risk in more than one country be safer? There are also 15 other countries with credit rating same or better than United States. Why not spread risk between those?
Think about what you're saying. If the United States economy and government collapse to the point of bankruptcy, will there be any impact on the other 15 countries' economies or government finances? The United States economy makes up almost half of the world economy. Other than Germany, the other countries on the list have tiny economies in comparison.

I'm not sure spreading the risk works in this case. If the US defaults, many of the other countries will probably be at risk of default as well. Remember, the US dollar is a reserve currency, so many other countries hold assets priced in dollars or invested in the US treasuries or have economies dependent on the US economy.

The only country I can think of with virtually no ties to the US economy or US banking is North Korea.
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Re: Is total world bond safer than US treasuries?

Post by JoMoney »

A bond is effectively a promise of being paid a certain amount of money.
If you're buying "Yankee bonds", which are bonds issued in U.S. dollars, sold in the U.S. market, and registered/regulated by the U.S. SEC, hard to argue this differs much from a U.S. corporate bond... but neither foreign payers nor corporate payers have the ability to raise taxes payable in U.S. dollars nor effectively "print" U.S. dollars to ensure the promise can be made... so...
No, they're not safer than U.S. Treasuries for U.S. investors.
If you're buying foreign bonds denominated in foreign currency, at a minimum you have currency risk so you have no real idea what your return in U.S. dollars will be.... and if some real trouble should come, foreign owners of foreign debt really have no legal means of enforcing their claim, their reliant on continued friendly relations between countries and the foreign debtors desire to continue to access foreign lenders... which is good enough in good times, but can turn very quickly.
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Re: Is total world bond safer than US treasuries?

Post by wolf359 »

JoMoney wrote: Fri Dec 27, 2019 9:02 am A bond is effectively a promise of being paid a certain amount of money.
If you're buying "Yankee bonds", which are bonds issued in U.S. dollars, sold in the U.S. market, and registered/regulated by the U.S. SEC, hard to argue this differs much from a U.S. corporate bond... but neither foreign payers nor corporate payers have the ability to raise taxes payable in U.S. dollars nor effectively "print" U.S. dollars to ensure the promise can be made... so...
No, they're not safer than U.S. Treasuries for U.S. investors.
If you're buying foreign bonds denominated in foreign currency, at a minimum you have currency risk so you have no real idea what your return in U.S. dollars will be.... and if some real trouble should come, foreign owners of foreign debt really have no legal means of enforcing their claim, their reliant on continued friendly relations between countries and the foreign debtors desire to continue to access foreign lenders... which is good enough in good times, but can turn very quickly.
+1
I forgot to mention currency risk.
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Re: Is total world bond safer than US treasuries?

Post by Call_Me_Op »

Blue456 wrote: Thu Dec 26, 2019 9:27 pm Seems like general consensus is that US treasuries are safer than bonds. But wouldn't total world bond be safer than US treasuries? I mean you are diversifying bonds among different countries.
US treasuries ARE bonds. Instead of asking for the general consensus, I suggest reading about and understanding bonds on your own. Why would one need to diversify if one owns an asset (i.e., US treasury) that is the safest asset in the world, which really cannot default short of the end of modern civilization?
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Re: Is total world bond safer than US treasuries?

Post by DonIce »

Call_Me_Op wrote: Fri Dec 27, 2019 9:10 am Why would one need to diversify if one owns an asset (i.e., US treasury) that is the safest asset in the world, which really cannot default short of the end of modern civilization?
Rampant exaggeration. The US could easily decide that all of its bondholders should take a 20% haircut as a means of reducing the national debt, for example. Plenty of countries have done such things before. This would leave "modern civilization" very much intact.
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Re: Is total world bond safer than US treasuries?

Post by JoMoney »

DonIce wrote: Fri Dec 27, 2019 9:25 am
Call_Me_Op wrote: Fri Dec 27, 2019 9:10 am Why would one need to diversify if one owns an asset (i.e., US treasury) that is the safest asset in the world, which really cannot default short of the end of modern civilization?
Rampant exaggeration. The US could easily decide that all of its bondholders should take a 20% haircut as a means of reducing the national debt, for example. Plenty of countries have done such things before. This would leave "modern civilization" very much intact.
It could, but would be a unnecessarily complicated and politically disastrous way to do it compared to printing and taxing their way out of it.
They could put a 20% tax on passive/interest income, which would also have political problems, but as an example, the government has means of going about it without default.
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Re: Is total world bond safer than US treasuries?

Post by JoMoney »

One might point to inflation and taxes as being "risky", but if you already have liabilities denominated in U.S. dollars, say a lease on a house, having your savings in bonds tied to U.S. dollars doesn't have the currency risk. Generally prices are 'sticky' in your home currency, and central banks strive to keep it stable that way as a primary function. If the currency relative to prices of things were more volatile the currency itself would fail to serve its purpose as a currency (which is part of the reason why Bitcoin will never be a currency).
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Re: Is total world bond safer than US treasuries?

Post by 3funder »

wolf359 wrote: Fri Dec 27, 2019 8:49 am
Blue456 wrote: Thu Dec 26, 2019 10:20 pm
Caduceus wrote: Thu Dec 26, 2019 9:37 pm Bonds are not like stocks. With bonds the key risk is credit risk. If you agree, as many do, that the U.S. has the least credit risk, then total world bond is not safer than 100% U.S. treasuries. The yield is a proximate marker for the market's assessment of the risk. For similar durations, international bonds usually offer more than US-equivalents.
But wouldn't spreading your risk in more than one country be safer? There are also 15 other countries with credit rating same or better than United States. Why not spread risk between those?
Think about what you're saying. If the United States economy and government collapse to the point of bankruptcy, will there be any impact on the other 15 countries' economies or government finances? The United States economy makes up almost half of the world economy. Other than Germany, the other countries on the list have tiny economies in comparison.

I'm not sure spreading the risk works in this case. If the US defaults, many of the other countries will probably be at risk of default as well. Remember, the US dollar is a reserve currency, so many other countries hold assets priced in dollars or invested in the US treasuries or have economies dependent on the US economy.

The only country I can think of with virtually no ties to the US economy or US banking is North Korea.
+1. When it comes to bonds, I stick with the United States.
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Re: Is total world bond safer than US treasuries?

Post by longinvest »

longinvest wrote: Fri Dec 27, 2019 8:37 am Bonds aren't cash; they're marketable securities with a fluctuating market value. Diversifying one's bond exposure across the yield curves of investment-grade bonds in various countries (with currency hedging) dampens interest rate risk.
Let me repeat this differently. While Treasury bonds have a very low default risk, they still carry interest rate risk. In other words, an investor can lose money with a Treasury bond due to a change in yields. The longer the maturity of the Treasury bond, the bigger the risk of loss.

Diversifying bonds across different types of bonds, like Treasury, corporate, domestic, and (currency-hedged) international, dampens interest rate risk.
Last edited by longinvest on Fri Dec 27, 2019 9:53 am, edited 1 time in total.
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Re: Is total world bond safer than US treasuries?

Post by ohai »

It could easily be argued that holding ten 98% safe assets is safer than holding one 99% safe asset, due to diversification.

With that being said, "Total World" bond index is not going to satisfy this requirement, since the credit quality of some of its holdings will be far inferior and offset the benefit of diversification vs US treasuries.
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Re: Is total world bond safer than US treasuries?

Post by abuss368 »

Blue456 wrote: Thu Dec 26, 2019 9:27 pm Seems like general consensus is that US treasuries are safer than bonds. But wouldn't total world bond be safer than US treasuries? I mean you are diversifying bonds among different countries.
Hard to say what the future holds. Treasuries are the most liquid pool of assets in the world. Always paid. For that reason, David Swensen recommended that the bond portion of a portfolio be split 50% treasuries and 50% tips.

Vanguard investment experts however recommend a two fund strategy with 70% in total bond and 30% in total international bond.

Over the long term it may not make much difference.
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Re: Is total world bond safer than US treasuries?

Post by longinvest »

There are many risks to marketable securities. It's a behavioral mistake to only consider one risk (e.g. default) and ignore all other risks when deciding whether to include (or not) a security into a portfolio.

Vanguard's Intermediate-Term Treasury Index Fund (VSIGX) only contains 117 bonds. In contrast, Vanguard's Total World Bond ETF (BNDW) contains 15,203 bonds; that's 130 times as many bonds as VSIGX! There's a huge difference in market impact of investing some money in one or the other. It's obvious that investing into 15,203 bonds will have a much, much smaller impact than investing into 117 bonds.

I think that it's best to embrace the wide diversification across non-speculative investment-grade securities of Bill Sharpe's preferred portfolio (VT + BNDW) or a similar global balanced index One-Fund Portfolio with no more than a moderate amount of home bias.
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Re: Is total world bond safer than US treasuries?

Post by Blue456 »

rossington wrote: Fri Dec 27, 2019 4:09 am Where did you get the information that makes you think that adding ex-US bonds makes it safer than all Treasurys? (or even Total US Bonds for that matter).
I will never understand why anyone would consider this.
If you are concerned about diversifying in the bond sector international should not be a consideration.
I didn't read it anywhere. I am asking for input from fellow BH members. And isn't total world bond more diverse investment than investing into treasuries of one country?
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Re: Is total world bond safer than US treasuries?

Post by Blue456 »

longinvest wrote: Fri Dec 27, 2019 10:19 am There are many risks to marketable securities. It's a behavioral mistake to only consider one risk (e.g. default) and ignore all other risks when deciding whether to include (or not) a security into a portfolio.

Vanguard's Intermediate-Term Treasury Index Fund (VSIGX) only contains 117 bonds. In contrast, Vanguard's Total World Bond ETF (BNDW) contains 15,203 bonds; that's 130 times as many bonds as VSIGX! There's a huge difference in market impact of investing some money in one or the other. It's obvious that investing into 15,203 bonds will have a much, much smaller impact than investing into 117 bonds.

I think that it's best to embrace the wide diversification across non-speculative investment-grade securities of Bill Sharpe's preferred portfolio (VT + BNDW) or a similar global balanced index One-Fund Portfolio with no more than a moderate amount of home bias.
The diversification, is what made me think that total world bond would be safer than treasuries.
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Re: Is total world bond safer than US treasuries?

Post by columbia »

Number of those 117 treasuries which present a concern for me, re:defaulting: 0
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Re: Is total world bond safer than US treasuries?

Post by longinvest »

Blue456 wrote: Fri Dec 27, 2019 10:39 am
longinvest wrote: Fri Dec 27, 2019 10:19 am There are many risks to marketable securities. It's a behavioral mistake to only consider one risk (e.g. default) and ignore all other risks when deciding whether to include (or not) a security into a portfolio.

Vanguard's Intermediate-Term Treasury Index Fund (VSIGX) only contains 117 bonds. In contrast, Vanguard's Total World Bond ETF (BNDW) contains 15,203 bonds; that's 130 times as many bonds as VSIGX! There's a huge difference in market impact of investing some money in one or the other. It's obvious that investing into 15,203 bonds will have a much, much smaller impact than investing into 117 bonds.

I think that it's best to embrace the wide diversification across non-speculative investment-grade securities of Bill Sharpe's preferred portfolio (VT + BNDW) or a similar global balanced index One-Fund Portfolio with no more than a moderate amount of home bias.
The diversification, is what made me think that total world bond would be safer than treasuries.
Blue456, the "safer" word unfortunately means different things to different people. The use of this word often results into a heated debate.

I tried to be careful. I didn't say that the broadly diversified portfolio was "safer"; I just said that I think that it's best to broadly diversify. :wink:
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Re: Is total world bond safer than US treasuries?

Post by lazyday »

longinvest wrote: Fri Dec 27, 2019 8:37 am Diversifying one's bond exposure across the yield curves of investment-grade bonds in various countries (with currency hedging) dampens interest rate risk.
This makes sense, if you don’t mind the credit risk in Vanguard’s funds. One could also reduce inflation risk and real rate risk by holding short term Treasuries, reduce inflation risk with TIPS, or reduce inflation risk and real rate risk with I bonds or short term TIPS.
longinvest wrote: Fri Dec 27, 2019 10:19 amVanguard's Intermediate-Term Treasury Index Fund (VSIGX) only contains 117 bonds. In contrast, Vanguard's Total World Bond ETF (BNDW) contains 15,203 bonds; that's 130 times as many bonds as VSIGX! There's a huge difference in market impact of investing some money in one or the other.
Of course my personal market impact is essentially zero, even if my entire bond portfolio is just one 2 year Treasury. If too much money is chasing Treasuries, the risk adjusted return could be poor, but there doesn’t seem to be evidence of this.

I like suggestions of a Sharpe portfolio such as Lifestrategy as an approximation, or of a one fund portfolio such as Target Retirement, because I believe they are likely to help one stay the course, which can both reduce risk and increase return. But for someone who already has chosen a more complicated portfolio, I doubt there’s much harm in reducing bond diversification to focus on safe US bonds, and there may be benefit.
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Blue456
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Re: Is total world bond safer than US treasuries?

Post by Blue456 »

columbia wrote: Fri Dec 27, 2019 10:45 am Number of those 117 treasuries which present a concern for me, re:defaulting: 0
What if the U.S. government defaults on all the treasuries? Something like what happened in Venezuela. How would total world bond respond?
rossington
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Re: Is total world bond safer than US treasuries?

Post by rossington »

Blue456 wrote: Fri Dec 27, 2019 11:27 am
columbia wrote: Fri Dec 27, 2019 10:45 am Number of those 117 treasuries which present a concern for me, re:defaulting: 0
What if the U.S. government defaults on all the treasuries? Something like what happened in Venezuela. How would total world bond respond?
That's the point we're trying to make....don't worry about that.
So as far as bonds are concerned diversify within the U.S. The higher risk is adding ex-U.S. where credit is not as stable.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.
mongstradamus
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Re: Is total world bond safer than US treasuries?

Post by mongstradamus »

Blue456 wrote: Fri Dec 27, 2019 11:27 am
columbia wrote: Fri Dec 27, 2019 10:45 am Number of those 117 treasuries which present a concern for me, re:defaulting: 0
What if the U.S. government defaults on all the treasuries? Something like what happened in Venezuela. How would total world bond respond?
For me personally if something happened where US government defaulted on their treasuries , we as us citizens would have a lot more things to worry about.
columbia
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Re: Is total world bond safer than US treasuries?

Post by columbia »

rossington wrote: Fri Dec 27, 2019 1:19 pm
Blue456 wrote: Fri Dec 27, 2019 11:27 am
columbia wrote: Fri Dec 27, 2019 10:45 am Number of those 117 treasuries which present a concern for me, re:defaulting: 0
What if the U.S. government defaults on all the treasuries? Something like what happened in Venezuela. How would total world bond respond?
That's the point we're trying to make....don't worry about that.
So as far as bonds are concerned diversify within the U.S. The higher risk is adding ex-U.S. where credit is not as stable.

There are no plausible backup plans if the US government starts defaulting, as that likely means that equities have dropped 99% too; were into guns, ammo and dehydrated food scenarios, at that point.
wolf359
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Re: Is total world bond safer than US treasuries?

Post by wolf359 »

Blue456 wrote: Fri Dec 27, 2019 10:34 am
rossington wrote: Fri Dec 27, 2019 4:09 am Where did you get the information that makes you think that adding ex-US bonds makes it safer than all Treasurys? (or even Total US Bonds for that matter).
I will never understand why anyone would consider this.
If you are concerned about diversifying in the bond sector international should not be a consideration.
I didn't read it anywhere. I am asking for input from fellow BH members. And isn't total world bond more diverse investment than investing into treasuries of one country?
Vanguard itself regularly recommends that people invest internationally. Specifically, they recommend that 30% of your bond allocation should be in international bonds. (Source: https://investor.vanguard.com/investing ... -investing)

This is one of the areas that I disagree with Vanguard, and do not follow this advice.

I agree with them that I should invest internationally, and understand the case for international equities. I do not understand the case for international bonds, and do not invest in them.
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Phineas J. Whoopee
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Re: Is total world bond safer than US treasuries?

Post by Phineas J. Whoopee »

mongstradamus wrote: Thu Dec 26, 2019 11:01 pm Isn’t vsigx, the index version of intermediate treasuries , the closest you can get to 100 percent treasuries.
Well, although I'm not suggesting you personally do it, nor discouraging you, one could always manage their own portfolio of Treasuries. That would be 100 percent.

PJW
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willthrill81
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Re: Is total world bond safer than US treasuries?

Post by willthrill81 »

Blue456 wrote: Thu Dec 26, 2019 10:20 pm But wouldn't spreading your risk in more than one country be safer?
If the U.S. Treasury defaults on its bond obligations, the entire global financial system may go down the toilet.
mongstradamus wrote: Fri Dec 27, 2019 1:57 pm For me personally if something happened where US government defaulted on their treasuries , we as us citizens would have a lot more things to worry about.
columbia wrote: Fri Dec 27, 2019 2:15 pmThere are no plausible backup plans if the US government starts defaulting, as that likely means that equities have dropped 99% too; were into guns, ammo and dehydrated food scenarios, at that point.
:thumbsup
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MathWizard
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Re: Is total world bond safer than US treasuries?

Post by MathWizard »

If US treasuries are not safe, then the dollars in your billfold are not safe either, nor are your
FDIC protected bank accounts. All are backed by the full faith and credit of the USA.

If US treasuries fail, then we are all in a completely different world, far worse than the
Great Depression. Think post WW I Germany.
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willthrill81
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Re: Is total world bond safer than US treasuries?

Post by willthrill81 »

MathWizard wrote: Fri Dec 27, 2019 2:44 pm If US treasuries are not safe, then the dollars in your billfold are not safe either, nor are your
FDIC protected bank accounts. All are backed by the full faith and credit of the USA.

If US treasuries fail, then we are all in a completely different world, far worse than the
Great Depression. Think post WW I Germany.
It would likely be far worse than that, because the U.S. dollar is the world's largest reserve currency, which wasn't the case for the German papiermark. If the dollar goes down, the global financial markets could very easily and literally collapse.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
rossington
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Re: Is total world bond safer than US treasuries?

Post by rossington »

willthrill81 wrote: Fri Dec 27, 2019 2:47 pm If the dollar goes down, the global financial markets could very easily and literally collapse.
If the dollar goes down, the global financial markets WOULD very easily and literally collapse.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.
MathWizard
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Re: Is total world bond safer than US treasuries?

Post by MathWizard »

willthrill81 wrote: Fri Dec 27, 2019 2:47 pm
MathWizard wrote: Fri Dec 27, 2019 2:44 pm If US treasuries are not safe, then the dollars in your billfold are not safe either, nor are your
FDIC protected bank accounts. All are backed by the full faith and credit of the USA.

If US treasuries fail, then we are all in a completely different world, far worse than the
Great Depression. Think post WW I Germany.
It would likely be far worse than that, because the U.S. dollar is the world's largest reserve currency, which wasn't the case for the German papiermark. If the dollar goes down, the global financial markets could very easily and literally collapse.
I agree that the collapse would be worse.

Post WW I Germany was the worst example I could think of in recent history for an advanced economy.

I'm sure that the fed government would just "print money" since it is easy to do when they are just numbers on a
balance sheet. They would choose inflation, even hyper-inflation to defaulting on bonds.
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willthrill81
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Re: Is total world bond safer than US treasuries?

Post by willthrill81 »

MathWizard wrote: Fri Dec 27, 2019 3:06 pm I'm sure that the fed government would just "print money" since it is easy to do when they are just numbers on a
balance sheet. They would choose inflation, even hyper-inflation to defaulting on bonds.
Correct.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
bck63
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Re: Is total world bond safer than US treasuries?

Post by bck63 »

rossington wrote: Fri Dec 27, 2019 4:09 am Where did you get the information that makes you think that adding ex-US bonds makes it safer than all Treasurys? (or even Total US Bonds for that matter).
I will never understand why anyone would consider this.
If you are concerned about diversifying in the bond sector international should not be a consideration.
Any thoughts on why Vanguard uses 30% international bonds in their target and asset allocation (Lifestrategy) funds?
bck63
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Re: Is total world bond safer than US treasuries?

Post by bck63 »

wolf359 wrote: Fri Dec 27, 2019 9:04 am I forgot to mention currency risk.
Vanguard total international bond index fund is currency hedged.
columbia
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Re: Is total world bond safer than US treasuries?

Post by columbia »

bck63 wrote: Fri Dec 27, 2019 3:09 pm
rossington wrote: Fri Dec 27, 2019 4:09 am Where did you get the information that makes you think that adding ex-US bonds makes it safer than all Treasurys? (or even Total US Bonds for that matter).
I will never understand why anyone would consider this.
If you are concerned about diversifying in the bond sector international should not be a consideration.
Any thoughts on why Vanguard uses 30% international bonds in their target and asset allocation (Lifestrategy) funds?
Their published rationale relies on some pretty weak evidence of purported benefits; my crass explanation is that they perceived them to be cheaper.
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Re: Is total world bond safer than US treasuries?

Post by danielc »

Blue456 wrote: Thu Dec 26, 2019 9:27 pm Seems like general consensus is that US treasuries are safer than bonds. But wouldn't total world bond be safer than US treasuries? I mean you are diversifying bonds among different countries.
I don't think that there is any such consensus, but it is certainly a common opinion among American investors. But I think that it reflects some amount of "home bias". According to Standard & Poor, there are 11 countries with higher credit rating than the US (including Canada, Germany, Denmark, Sweden, Norway, Netherlands, Switzerland, Australia, Singapore, Liechtenstein, and Luxembourg). So you would be diversifying and reducing your credit risk if you added bonds from those countries. More importantly, for sovereign debt from developed nations, the biggest risk is not credit risk but interest rate risk. You would definitely be diversifying interest rate risk if you spread your bonds across different interest rate environments. So I think that there is a strong case to be made that a diverse portfolio of US and international developed sovereign bonds is indeed quite a bit safer than just getting US treasuries. As it turns out, Vanguard seems to agree with my view. In their balanced portfolios they consistently put 30% of the bond allocation outside the US.
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