0.00% Yield on the Vanguard Short-Term Treasury Fund

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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

Post by aj76er »

Elysium wrote: Sat Jul 18, 2020 5:55 pm I will still take something with Zero returns over something that may have negative returns, could be what stocks are in for.
All reasonable and accepted valuation metrics for global equities point to a long term return of much higher than -1% real. No guarantees, of course; but neither is -1% real if inflation picks up
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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

Post by Northern Flicker »

Munir wrote: Tue Jul 21, 2020 1:16 pm
Doc wrote: Tue Jul 21, 2020 1:06 pm
Munir wrote: Tue Jul 21, 2020 12:35 pm The Vanguard Short Term Federal Fund (VSGBX/VSGDX) has an SEC rate of 1.22% as of 7/17/20. What is wrong with holding it as a substitute for a MM fund?
Image

Some people do not like to see the price of their "cash" to go down by 1% over a couple of days.
Ouch !! It has a duration of 2 years and some volatility is expected. But are there other options with yields above 1.0 and less volatility? One is between the rock and the hard place.
It is a bond fund, not a cash fund. When cash returns near zero it means the risk-free rate is near zero, which means higher rates are not risk free. VSGBX/VSGDX is a very reasonable holding for a bond fund. At current yields, I might prefer it to a total bond market index fund. It is not the same as holding cash, however.
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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

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Northern Flicker wrote: Tue Jul 21, 2020 2:14 pm
Munir wrote: Tue Jul 21, 2020 1:16 pm
Doc wrote: Tue Jul 21, 2020 1:06 pm
Munir wrote: Tue Jul 21, 2020 12:35 pm The Vanguard Short Term Federal Fund (VSGBX/VSGDX) has an SEC rate of 1.22% as of 7/17/20. What is wrong with holding it as a substitute for a MM fund?
Image

Some people do not like to see the price of their "cash" to go down by 1% over a couple of days.
Ouch !! It has a duration of 2 years and some volatility is expected. But are there other options with yields above 1.0 and less volatility? One is between the rock and the hard place.
It is a bond fund, not a cash fund. When cash returns near zero it means the risk-free rate is near zero, which means higher rates are not risk free. VSGBX/VSGDX is a very reasonable holding for a bond fund. At current yields, I might prefer it to a total bond market index fund. It is not the same as holding cash, however.
Thank you for the responses to my post. I had researched the vanguard MM funds and the short or ultra short bond funds previously before deciding on VSGDX. I had ruled out VUSFX but I cannot remember why. I will go over all these numbers and reassess. I am aware that anything called bond fund, even with a very short duration, will still have some volatility. I will tolerate some minor volatility (whatever minor may mean for me) and not expect a fixed valuation as one finds in the Prime MM Fund.
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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

Post by Northern Flicker »

If holding cash and an intermediate bond fund, you may consider the duration of the combination, and when re-allocating cash to a short-term bond fund like VSGBX, also adjust the ratio of its allocation with that of the intermediate fund to avoid increasing duration.

Thus, if you were holding 78% VBTLX 22% cash as a hypothetical example, then with a duration of 6.4 for VBTLX, the combined duration is 0.78*6.4 which is about 5 years.

VSGDX has a duration of 1.9 years If you hold a portfolio with fraction p of VBTLX and fraction (1-p) of VSGDX, then duration is 6.4p + 1.9*(1-p). If we want that to have a duration of 5 years per the original allocation, then

6.4p + 1.9*(1-p) = 5 = 4.5p + 1.9.

This implies that p = 3.1/4.5 or about 0.69.

So, if I did not make a calculation error, someone could replace 78% VBTLX / 22% cash with 69% VBTLX / 31% VSGDX and have the same duration and similar exposure to the risk of rising rates.
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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

Post by jeffyscott »

Doc wrote: Tue Jul 21, 2020 1:53 pm
Stinky wrote: Tue Jul 21, 2020 1:38 pm VUSFX fits your criteria. Vanguard Ultra Short fund.
The price of VUSFX is up some 0.15% over the last month. That's 1.8% annualized. Get Jeffyscott to confirm but I think that distorts the 30 day SEC yield.
I don't know the exact effect of a price change on SEC yield, but it would not be similar to the impact of the inflation adjustment with TIPS funds. With a TIPS fund it appears that some (most) funds threat the inflation adjustment as income and so it would be compounded like that. But that would not be the case for a normal fund of nominal bonds. As I understand it, and my understanding is probably somewhat flawed, the SEC yield divides the average income from the past 30 days (income in the sense that the YTM of a bond is the income) by the current price. So it's that income component that is the issue with TIPS funds, when they include the inflation adjustments as income.

In the case of VUSFX, Vanguard has the YTM at 1.2% (so 1.1% net of expenses) as of 6/30 and SEC yield was 1.29% as of that date. So the SEC yield is a little higher than the YTM, but nothing seems too crazy there.
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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

Post by Elysium »

aj76er wrote: Tue Jul 21, 2020 2:03 pm
Elysium wrote: Sat Jul 18, 2020 5:55 pm I will still take something with Zero returns over something that may have negative returns, could be what stocks are in for.
All reasonable and accepted valuation metrics for global equities point to a long term return of much higher than -1% real. No guarantees, of course; but neither is -1% real if inflation picks up
Then why would you be concerned about zero returns from a safe asset like short term treasury? if you hold stock heavy portfolio by all reasonable metrics you should have positive real returns, your bond allocation may dilute that a bit but at the same time dilute risk and offer protection from occasional dips in the market. You can also buy stocks on the cheap when that happens, so they are a very useful asset. Focus should be on the portfolio as a whole not one or two components.
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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

Post by aj76er »

Elysium wrote: Tue Jul 21, 2020 5:33 pm
aj76er wrote: Tue Jul 21, 2020 2:03 pm
Elysium wrote: Sat Jul 18, 2020 5:55 pm I will still take something with Zero returns over something that may have negative returns, could be what stocks are in for.
All reasonable and accepted valuation metrics for global equities point to a long term return of much higher than -1% real. No guarantees, of course; but neither is -1% real if inflation picks up
Then why would you be concerned about zero returns from a safe asset like short term treasury? if you hold stock heavy portfolio by all reasonable metrics you should have positive real returns, your bond allocation may dilute that a bit but at the same time dilute risk and offer protection from occasional dips in the market. You can also buy stocks on the cheap when that happens, so they are a very useful asset. Focus should be on the portfolio as a whole not one or two components.
Zero to negative returns are unfortunate, but I totally agree that you can still tune your entire portfolio risk/reward to your liking. However, with current bond yields the risk/reward ratio simply shifts to a less favorable trade off because to get the same historical reward you likely must take on more risk (or in other words, same risk for less reward).

My goal with fixed income in this environment is to get 0% real returns. Only good options I see for FI are:
1. Diversified, investment-grade intermediate bond funds in tax sheltered accounts (e.g US Total Bond will likely give +0.5% real over inflation before tax)
2. Stable value funds in 401k, if available
3. I-bonds. New issue I-bonds will return 0% real; older issues yield more depending on the fixed rate.
4. Well chosen CD’s
5. HY savings used to pay off CC float with high cash-back. Eg Ally is 1% with Fidelity 2% cash back means 1 month spending cash earns about 3% effectively.
6. Long term bonds such as US Treasurys and EE bonds. However, unexpected inflation risk is high for these.

So if you can achieve 0% real on your fixed income, and assume 5.5% as long term return on globally diversified equities, the expected portfolio return is easy to calculate: just multiply 5.5% by the percentage of equities. For example a 50/50 portfolio should expect 2.75% real. Retirees should adjust their SWR accordingly. Accumulators should adjust their savings rate if possible.
Last edited by aj76er on Wed Jul 22, 2020 9:54 am, edited 1 time in total.
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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

Post by Stinky »

aj76er wrote: Wed Jul 22, 2020 9:44 am
So if you can achieve 0% real on your fixed income, and assume 5.5% as long term return on globally diversified equities, the expected portfolio return is easy to calculate: just multiply 5.5% by the percentage of fixed income equities.
Did you mean “equities”?
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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

Post by aj76er »

aj76er wrote: Wed Jul 22, 2020 9:44 am
Elysium wrote: Tue Jul 21, 2020 5:33 pm
aj76er wrote: Tue Jul 21, 2020 2:03 pm
Elysium wrote: Sat Jul 18, 2020 5:55 pm I will still take something with Zero returns over something that may have negative returns, could be what stocks are in for.
All reasonable and accepted valuation metrics for global equities point to a long term return of much higher than -1% real. No guarantees, of course; but neither is -1% real if inflation picks up
Then why would you be concerned about zero returns from a safe asset like short term treasury? if you hold stock heavy portfolio by all reasonable metrics you should have positive real returns, your bond allocation may dilute that a bit but at the same time dilute risk and offer protection from occasional dips in the market. You can also buy stocks on the cheap when that happens, so they are a very useful asset. Focus should be on the portfolio as a whole not one or two components.
Zero to negative returns are unfortunate, but I totally agree that you can still tune your entire portfolio risk/reward to your liking. However, with current bond yields the risk/reward ratio simply shifts to a less favorable trade off because to get the same historical reward you likely must take on more risk (or in other words, same risk for less reward).

My goal with fixed income in this environment is to get 0% real returns. Only good options I see for FI are:
1. Diversified, investment-grade intermediate bond funds in tax sheltered accounts (e.g US Total Bond will likely give +0.5% real over inflation before tax)
2. Stable value funds in 401k, if available
3. I-bonds. New issue I-bonds will return 0% real; older issues yield more depending on the fixed rate.
4. Well chosen CD’s
5. HY savings used to pay off CC float with high cash-back. Eg Ally is 1% with Fidelity 2% cash back means 1 month spending cash earns about 3% effectively.
6. Long term bonds such as US Treasurys and EE bonds. However, unexpected inflation risk is high for these.

So if you can achieve 0% real on your fixed income, and assume 5.5% as long term return on globally diversified equities, the expected portfolio return is easy to calculate: just multiply 5.5% by the percentage of equities. For example a 50/50 portfolio should expect 2.75% real. Retirees should adjust their SWR accordingly. Accumulators should adjust their savings rate if possible.
"Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth" - John C. Bogle
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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

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aj76er wrote: Wed Jul 22, 2020 9:44 am(e.g US Total Bond will likely give +0.5% real over inflation before tax)
Assuming return is equal to the SEC yield of ~1.2%, to get +0.5% real would require inflation of 0.7%. I don't know how likely or unlikely that is, just quantifying it. However, 5 year treasuries are at 0.27% while 5 year TIPS are at -1.13% :shock: implying expected inflation of ~1.4%.
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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

Post by aj76er »

Stinky wrote: Wed Jul 22, 2020 9:51 am
aj76er wrote: Wed Jul 22, 2020 9:44 am
So if you can achieve 0% real on your fixed income, and assume 5.5% as long term return on globally diversified equities, the expected portfolio return is easy to calculate: just multiply 5.5% by the percentage of fixed income equities.
Did you mean “equities”?
Yes, thank you. Corrected the post.
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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

Post by aj76er »

jeffyscott wrote: Wed Jul 22, 2020 9:54 am
aj76er wrote: Wed Jul 22, 2020 9:44 am(e.g US Total Bond will likely give +0.5% real over inflation before tax)
Assuming return is equal to the SEC yield of ~1.2%, to get +0.5% real would require inflation of 0.7%. I don't know how likely or unlikely that is, just quantifying it. However, 5 year treasuries are at 0.27% while 5 year TIPS are at -1.13% :shock: implying expected inflation of ~1.4%.
I am assuming positive roll yield. Historically this has been +0.2% to +0.3% for total bond mkt.

Also assuming 1.06% for current inflation (i.e I-bonds rate).

So, 1.5 - 1 = 0.5%
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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

Post by jeffyscott »

aj76er wrote: Wed Jul 22, 2020 9:59 am
jeffyscott wrote: Wed Jul 22, 2020 9:54 am
aj76er wrote: Wed Jul 22, 2020 9:44 am(e.g US Total Bond will likely give +0.5% real over inflation before tax)
Assuming return is equal to the SEC yield of ~1.2%, to get +0.5% real would require inflation of 0.7%. I don't know how likely or unlikely that is, just quantifying it. However, 5 year treasuries are at 0.27% while 5 year TIPS are at -1.13% :shock: implying expected inflation of ~1.4%.
I am assuming positive roll yield. Historically this has been +0.2% to +0.3% for total bond mkt.

Also assuming 1.06% for current inflation (i.e I-bonds rate).

So, 1.5 - 1 = 0.5%
Does anyone know if the roll yield a function of only the slope of the yield curve or does the overall level of rates also affect it?

For example, assume one is buying 5 year treasuries and selling them after 4 years, then when 1 year is at 3% and 5 year is 3.5%, would the roll yield be the same as it would be for 1 year at 0.25% and 5 year at 0.75%?
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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

Post by Doc »

jeffyscott wrote: Wed Jul 22, 2020 10:42 am Does anyone know if the roll yield a function of only the slope of the yield curve or does the overall level of rates also affect it?
The key factor is the change in the slope. You want to invest in bonds a year or three longer than the point where the curve starts to bend over and sell when it starts to become straight again. Generalities are probably not the way to go. You need to do the calculation.

Here's a chart which kind of illustrates the idea.

Image

During this period (2016-2018) a 7-3 was usually the best. (Occasionally a 10-3.)

See July 2018 thread: viewtopic.php?t=253214

By the way Jeffy you contributed to that thread. :D
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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

Post by Kevin M »

jeffyscott wrote: Wed Jul 22, 2020 10:42 am Does anyone know if the roll yield a function of only the slope of the yield curve or does the overall level of rates also affect it?

For example, assume one is buying 5 year treasuries and selling them after 4 years, then when 1 year is at 3% and 5 year is 3.5%, would the roll yield be the same as it would be for 1 year at 0.25% and 5 year at 0.75%?
This is easy to answer using the spreadsheet PRICE function. The roll-down returns for your two scenarios are almost the same, at 0.49% for 3.5% -> 3.0% and 0.50% for 0.75% -> 0.25%. At 10.0% -> 9.5% the hypothetical roll-down return is 0.47%, so higher yields result in slightly lower hypothetical roll-down return.

However, as you imply, the steepness of the yield curve is the main factor, and of course all of this assumes a static yield curve, which is a fantasy. For the current yield curve, with the 5y Treasury at 0.27% and the 1y at 0.15%, the static-yield-curve expected roll-down return is 0.12%.

The thing to remember is that an increase of only 12 basis points in the 1y yield over the next four years wipes out any potential roll-down return, and an increase greater than that results in a negative roll-up return.

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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

Post by Kevin M »

aj76er wrote: Wed Jul 22, 2020 9:59 am <snip>
Also assuming 1.06% for current inflation (i.e I-bonds rate).
<snip>
This is not an assumption that most would consider valid. The I bond inflation component is based on a prior 6-month period. It is more common to use breakeven inflation for the term of interest as expected inflation for that term, although some prefer survey data due to premiums embedded in BEI (although the two premiums work in opposite directions, so offset each other at least to some extent).

For example, here's what the Federal Reserve Bank of St. Louis says about the 5-year BEI rate:
The breakeven inflation rate represents a measure of expected inflation derived from 5-Year Treasury Constant Maturity Securities (BC_5YEAR) and 5-Year Treasury Inflation-Indexed Constant Maturity Securities (TC_5YEAR). The latest value implies what market participants expect inflation to be in the next 5 years, on average.
Source: https://fred.stlouisfed.org/series/T5YIE. Underline mine.

At any rate BEI rate is forward looking, while the I bond inflation component is backward looking. Currently the 5y BEI rate is 1.40%, the 10y is 1.48%, and the 20y is 1.63%.

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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

Post by jeffyscott »

Kevin M wrote: Wed Jul 22, 2020 12:35 pm
jeffyscott wrote: Wed Jul 22, 2020 10:42 am Does anyone know if the roll yield a function of only the slope of the yield curve or does the overall level of rates also affect it?

For example, assume one is buying 5 year treasuries and selling them after 4 years, then when 1 year is at 3% and 5 year is 3.5%, would the roll yield be the same as it would be for 1 year at 0.25% and 5 year at 0.75%?
This is easy to answer using the spreadsheet PRICE function. The roll-down returns for your two scenarios are almost the same, at 0.49% for 3.5% -> 3.0% and 0.50% for 0.75% -> 0.25%. At 10.0% -> 9.5% the hypothetical roll-down return is 0.47%, so higher yields result in slightly lower hypothetical roll-down return.

However, as you imply, the steepness of the yield curve is the main factor, and of course all of this assumes a static yield curve, which is a fantasy. For the current yield curve, with the 5y Treasury at 0.27% and the 1y at 0.15%, the static-yield-curve expected roll-down return is 0.12%.

The thing to remember is that an increase of only 12 basis points in the 1y yield over the next four years wipes out any potential roll-down return, and an increase greater than that results in a negative roll-up return.

Kevin
Thanks, Kevin.

So, while I'd not count on it materializing, it seems the idea of using the historical average is at least not unreasonable, since the roll down yield is not affected much by a low rate environment. Aside from maybe the greater risk that low rates might increase and reduce or eliminate the roll down return.
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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

Post by Kevin M »

jeffyscott wrote: Wed Jul 22, 2020 1:13 pm So, while I'd not count on it materializing, it seems the idea of using the historical average is at least not unreasonable, since the roll down yield is not affected much by a low rate environment.
I see several problems with this.

First, I don't know that we can really say what the historical average roll-down return is for something like the total bond market. You've got different types of bonds with different yield curves, and a wide range of bond maturities, each with a different 1-year expected roll-down return at the beginning of each year of the holding period. So I don't know where the 0.2% figure (or whatever) is even coming from.

Second, as I mentioned, it's not just that we're in a low-rate environment, but also a flattish yield-curve environment. Using your 5y to 1y example, you only get 0.13% of expected roll-down return over four years, so only about 0.03% per year, which is a lot less than 0.2% per year (which may or may not be a reasonable historical value).

Using a 10y to 1y Treasury roll-down with the current yield curve, the expected roll-down return (assuming a static yield curve) is only 0.46% over 9 years, so only about 0.05% per year. This assumes the 10y is bought at par at the current yield of 0.60%, rolls down today's, assumed static, yield curve, and is sold when it reaches 1y maturity. Here's a table that shows the results of the calculations:

Image

(The 1,2,3,5,7 and 10y yields are for today, 7/22/2020, at treasury.gov, and the 4,6,8 and 9y yields are derived from linear interpolation).

The roll-down return (RD Rtn) for the entire 9-year period can be observed pretty much directly by looking at the price of 100.46 in cell C11 (100.46/100 - 1 = 1.0046 - 1 = 0.0046 = 0.46%).

A few other observations that some might find interesting.

As this hypothetical 10y bond rolls down the hypothetical static yield curve, the roll-down return is highest in the first year (10y to 9y) at 0.44%, then basically decreases each year, with a bump for the 7y to 6y. Then the RD return turns negative starting at 5y to 4y, even though the yield curve slope is positive or flat, which is because the declining maturity, pulling the price from a premium toward 100, has a greater price impact than the declining yield.

If anyone wants to replicate, correct, or expand on the calculations, here are the formulas:

Image

Image

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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

Post by Doc »

Kevin M wrote: Wed Jul 22, 2020 7:52 pm Using a 10y to 1y Treasury roll-down with the current yield curve, the expected roll-down return (assuming a static yield curve) is only 0.46% over 9 years, so only about 0.05% per year.
The "best" way to use the roll-down yield concept is not to use a long term like a 10y to 1y but to use a period where the yield curve is changing most rapidly. This is "typically" in the 7y to 3 yr period. So using Kevin's chart you get 1.28% over 4 years or 0.07% per year if I understand his chart correctly.

Whoopee. But as Kevin stated the yield curve is flattish as well as just low so this is not typical.

Here's my chart from several years ago:

Image

Then we got 2.65% for 7y to 3y but only 2.24% for the 10y to 1y or 0.66% per year for the 7-3 vs. 0.22% per year for the 10-1 periods.Much better then than now.
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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

Post by aj76er »

Kevin M wrote: Wed Jul 22, 2020 7:52 pm So I don't know where the 0.2% figure (or whatever) is even coming from

-Kevin
In another recent bond thread, there was a historical chart of roll yield for VBTLX (US Total Bond Market) going back 40 years and the average was about 0.2 to 0.3%. If I can find it, I’ll post here.
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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

Post by Kevin M »

aj76er wrote: Thu Jul 23, 2020 1:47 pm
Kevin M wrote: Wed Jul 22, 2020 7:52 pm So I don't know where the 0.2% figure (or whatever) is even coming from

-Kevin
In another recent bond thread, there was a historical chart of roll yield for VBTLX (US Total Bond Market) going back 40 years and the average was about 0.2 to 0.3%. If I can find it, I’ll post here.
I'd need to see more than just a chart to give it any credence--I'd need to see the methodology that was used to calculate the roll-down return ("roll yield" is not a term commonly applied to bonds, but to futures--it was misused by a forum member some years ago, and unfortunately has propagated among some Bogleheads; just do a web search on "roll yield" and "rolldown return" to see this for yourself). So if you find it, please post a link to the thread (rather than just sharing the chart).

At any rate, the point remains that if you use the current Treasury yield curve, the expected roll-down return is much, much lower than 0.2% to 0.3%, as I hope I've demonstrated clearly.

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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

Post by Doc »

Kevin M wrote: Thu Jul 23, 2020 4:44 pm I'd need to see the methodology that was used to calculate the roll-down return ("roll yield" is not a term commonly applied to bonds, but to futures--it was misused by a forum member some years ago, and unfortunately has propagated among some Bogleheads; just do a web search on "roll yield" and "rolldown return" to see this for yourself).
Yep.
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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

Post by Kevin M »

Doc wrote: Thu Jul 23, 2020 12:32 pm
Kevin M wrote: Wed Jul 22, 2020 7:52 pm Using a 10y to 1y Treasury roll-down with the current yield curve, the expected roll-down return (assuming a static yield curve) is only 0.46% over 9 years, so only about 0.05% per year.
The "best" way to use the roll-down yield concept is not to use a long term like a 10y to 1y but to use a period where the yield curve is changing most rapidly.
The context here isn't about the best way to use the rolldown return concept, but how it affects the expected return of a bond fund.

It's more straightforward for something like an intermediate-term Treasury fund, say that holds Treasuries in the 3y to 10y maturity range, since you're dealing with one type of bond (one yield curve) and a specified maturity range (one segment of that yield curve). But even that has challenges, since the expected rolldown return depends not only on the slope of the yield curve, but also the premium or discount of each bond in the portfolio.
Doc wrote: Thu Jul 23, 2020 12:32 pmThis is "typically" in the 7y to 3 yr period. So using Kevin's chart you get 1.28% over 4 years or 0.07% per year if I understand his chart correctly.
I don't know where you came up with 1.28%, and 1.28%/4 <> 0.07%.

The 7y to 3y rolldown using the posted model/chart is 0.25%, so about 0.06% per year (so your per year number is close).

It might help to view a price vs. term (to maturity) chart for the table shared earlier:

Image

Looking from right to left, if the slope is increasing (from right to left), the rolldown return is positive, and if decreasing, it's negative.

But this particular model isn't applicable to any particular bond fund. As alluded to above, you'd need to calculate the 1-year expected rolldown return for each bond in the portfolio, which would depend on the price and coupon as well as the 1-year change in yield-curve yield for each bond, then calculate the weighted average of all of these individual rolldown returns.

Kevin
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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

Post by FIREchief »

aj76er wrote: Tue Jul 21, 2020 2:03 pm
Elysium wrote: Sat Jul 18, 2020 5:55 pm I will still take something with Zero returns over something that may have negative returns, could be what stocks are in for.
All reasonable and accepted valuation metrics for global equities point to a long term return of much higher than -1% real. No guarantees, of course; but neither is -1% real if inflation picks up
-1% real is guaranteed if I buy a TIPS with a real yield of -1%, regardless of what inflation does.
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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

Post by aj76er »

FIREchief wrote: Thu Jul 23, 2020 6:49 pm
aj76er wrote: Tue Jul 21, 2020 2:03 pm
Elysium wrote: Sat Jul 18, 2020 5:55 pm I will still take something with Zero returns over something that may have negative returns, could be what stocks are in for.
All reasonable and accepted valuation metrics for global equities point to a long term return of much higher than -1% real. No guarantees, of course; but neither is -1% real if inflation picks up
-1% real is guaranteed if I buy a TIPS with a real yield of -1%, regardless of what inflation does.
Sure, but the context of the quote (and the thread) is in reference to “nominal” bonds.
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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

Post by FIREchief »

aj76er wrote: Fri Jul 24, 2020 1:14 am
FIREchief wrote: Thu Jul 23, 2020 6:49 pm
aj76er wrote: Tue Jul 21, 2020 2:03 pm
Elysium wrote: Sat Jul 18, 2020 5:55 pm I will still take something with Zero returns over something that may have negative returns, could be what stocks are in for.
All reasonable and accepted valuation metrics for global equities point to a long term return of much higher than -1% real. No guarantees, of course; but neither is -1% real if inflation picks up
-1% real is guaranteed if I buy a TIPS with a real yield of -1%, regardless of what inflation does.
Sure, but the context of the quote (and the thread) is in reference to “nominal” bonds.
Really? I must have missed that.... :?
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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

Post by Elysium »

aj76er wrote: Fri Jul 24, 2020 1:14 am
FIREchief wrote: Thu Jul 23, 2020 6:49 pm
aj76er wrote: Tue Jul 21, 2020 2:03 pm
Elysium wrote: Sat Jul 18, 2020 5:55 pm I will still take something with Zero returns over something that may have negative returns, could be what stocks are in for.
All reasonable and accepted valuation metrics for global equities point to a long term return of much higher than -1% real. No guarantees, of course; but neither is -1% real if inflation picks up
-1% real is guaranteed if I buy a TIPS with a real yield of -1%, regardless of what inflation does.
Sure, but the context of the quote (and the thread) is in reference to “nominal” bonds.
FIREchief only see/hear TIPS, bought and held to maturity, never be sold ever before maturity, all other discussions translates into this :P
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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

Post by FIREchief »

Elysium wrote: Fri Jul 24, 2020 6:34 am
aj76er wrote: Fri Jul 24, 2020 1:14 am
FIREchief wrote: Thu Jul 23, 2020 6:49 pm
aj76er wrote: Tue Jul 21, 2020 2:03 pm
Elysium wrote: Sat Jul 18, 2020 5:55 pm I will still take something with Zero returns over something that may have negative returns, could be what stocks are in for.
All reasonable and accepted valuation metrics for global equities point to a long term return of much higher than -1% real. No guarantees, of course; but neither is -1% real if inflation picks up
-1% real is guaranteed if I buy a TIPS with a real yield of -1%, regardless of what inflation does.
Sure, but the context of the quote (and the thread) is in reference to “nominal” bonds.
FIREchief only see/hear TIPS, bought and held to maturity, never be sold ever before maturity, all other discussions translates into this :P
Perhaps thou doth protest too much? :P back at you...
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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

Post by LadyGeek »

Let's call it a tie. :wink:
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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

Post by Elysium »

FIREchief wrote: Fri Jul 24, 2020 1:51 pm
Elysium wrote: Fri Jul 24, 2020 6:34 am
aj76er wrote: Fri Jul 24, 2020 1:14 am
FIREchief wrote: Thu Jul 23, 2020 6:49 pm
aj76er wrote: Tue Jul 21, 2020 2:03 pm

All reasonable and accepted valuation metrics for global equities point to a long term return of much higher than -1% real. No guarantees, of course; but neither is -1% real if inflation picks up
-1% real is guaranteed if I buy a TIPS with a real yield of -1%, regardless of what inflation does.
Sure, but the context of the quote (and the thread) is in reference to “nominal” bonds.
FIREchief only see/hear TIPS, bought and held to maturity, never be sold ever before maturity, all other discussions translates into this :P
Perhaps thou doth protest too much? :P back at you...
Actually I like your views on TIPS, it makes for interesting counter points to otherwise what could be termed as mainstream discussion. In fact, I like all view points made with logic and reason. Just because I disagree and butt heads doesn't mean that I think those arguments do not have merits, except of course some of the obvious topics like market timing/performance chasing. Without arguing hard you aren't going to get to the best possible answers.
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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

Post by FIREchief »

Elysium wrote: Fri Jul 24, 2020 4:39 pm
FIREchief wrote: Fri Jul 24, 2020 1:51 pm
Elysium wrote: Fri Jul 24, 2020 6:34 am
aj76er wrote: Fri Jul 24, 2020 1:14 am
FIREchief wrote: Thu Jul 23, 2020 6:49 pm

-1% real is guaranteed if I buy a TIPS with a real yield of -1%, regardless of what inflation does.
Sure, but the context of the quote (and the thread) is in reference to “nominal” bonds.
FIREchief only see/hear TIPS, bought and held to maturity, never be sold ever before maturity, all other discussions translates into this :P
Perhaps thou doth protest too much? :P back at you...
Actually I like your views on TIPS, it makes for interesting counter points to otherwise what could be termed as mainstream discussion. In fact, I like all view points made with logic and reason. Just because I disagree and butt heads doesn't mean that I think those arguments do not have merits, except of course some of the obvious topics like market timing/performance chasing. Without arguing hard you aren't going to get to the best possible answers.
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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

Post by 000 »

To me, the most interesting question is will active funds (with 20bp ER) survive low/negative yields? Will people pay an AUM advisor to invest them in bonds?
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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

Post by tj »

Mel Lindauer wrote: Mon Jul 20, 2020 4:17 pm
nedsaid wrote: Sun Jul 19, 2020 11:04 am
Rick Ferri wrote: Sat Jul 18, 2020 5:39 pm Here is where things are, folks.

The Vanguard Short-Term Treasury Fund Investor Shares (VFISX) had a 30-day SEC yield of 0.00% as of 7/16/20.

A security's income, for the purposes of this calculation, is based on the current market yield to maturity (for bonds) or projected dividend yield (for stocks) of the fund's holdings over a trailing 30-day period.

Rick Ferri
We are heading for the Nedsaid Zero Fund Portfolio where Bogleheads will be debating which brand of mattress that we should be stuffing our cash into. I suppose it will be a low cost mattress.

REITs are out, TIPS are out, International Stocks are out. Now with Ultra Low interest rates, cash is out too and bonds aren't far behind. We just had a bear market in stocks and I supposed Total Stock Market should be out too. We aren't far from where we were in January of 2018, the US Stock Market has mostly been running in place. Cash stuffed in mattresses doesn't look so bad right now. ;o)
Even 0% I Bonds are looking golden at this point in time.
EE Bonds too!
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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

Post by Mel Lindauer »

tj wrote: Sat Jul 25, 2020 2:04 pm
Mel Lindauer wrote: Mon Jul 20, 2020 4:17 pm
nedsaid wrote: Sun Jul 19, 2020 11:04 am
Rick Ferri wrote: Sat Jul 18, 2020 5:39 pm Here is where things are, folks.

The Vanguard Short-Term Treasury Fund Investor Shares (VFISX) had a 30-day SEC yield of 0.00% as of 7/16/20.

A security's income, for the purposes of this calculation, is based on the current market yield to maturity (for bonds) or projected dividend yield (for stocks) of the fund's holdings over a trailing 30-day period.

Rick Ferri
We are heading for the Nedsaid Zero Fund Portfolio where Bogleheads will be debating which brand of mattress that we should be stuffing our cash into. I suppose it will be a low cost mattress.

REITs are out, TIPS are out, International Stocks are out. Now with Ultra Low interest rates, cash is out too and bonds aren't far behind. We just had a bear market in stocks and I supposed Total Stock Market should be out too. We aren't far from where we were in January of 2018, the US Stock Market has mostly been running in place. Cash stuffed in mattresses doesn't look so bad right now. ;o)
Even 0% I Bonds are looking golden at this point in time.
EE Bonds too!
Yep. 3.5% for 20 years looks mighty good right now.
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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

Post by Robert T »

.
A convergence of US yields to zero (and to similar low/zero rates elsewhere in the developed world) could reduce capital flows into US markets from overseas and lead to a weakening of the US dollar which may help (unhedged) international allocations.
.
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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

Post by Kevin M »

For any decent sized portfolio, the annual purchase limits on savings bonds (I and EE) make them not very useful for the fixed-income portion of a portfolio. Add to that the necessity to have to deal with the many quirks of TreasuryDirect (as well as possibly ditto for you heirs), and I find them not golden at all.

For these reasons, I sold the last of my I Bonds last year. Sure, 0% or 0.1% real with no term risk (having held for five years) looks great now (compared to TIPS), but the impact on my portfolio would have been so minuscule as to be a rounding error. And during the years I held them, I earned much less than on my direct CDs.

I guess they might make more sense for a younger investor who has many years to build up a significant amount in savings bonds, but then conditions could well change in a few years making TIPS more attractive than I Bonds (as they historically have been much of the time for a long-term investor). Ditto for a 20y Treasury vs. EE bond--the 20y Treasury yield was 3.37% as recently at November 2018, and you didn't need to hold for 20 years to earn that; as a matter of fact, you would have earned a much higher return than the initial from then to now, and could sell at any time to capitalize on that.

Kevin
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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

Post by tj »

Kevin M wrote: Sat Jul 25, 2020 5:49 pm For any decent sized portfolio, the annual purchase limits on savings bonds (I and EE) make them not very useful for the fixed-income portion of a portfolio. Add to that the necessity to have to deal with the many quirks of TreasuryDirect (as well as possibly ditto for you heirs), and I find them not golden at all.

For these reasons, I sold the last of my I Bonds last year. Sure, 0% or 0.1% real with no term risk (having held for five years) looks great now (compared to TIPS), but the impact on my portfolio would have been so minuscule as to be a rounding error. And during the years I held them, I earned much less than on my direct CDs.

I guess they might make more sense for a younger investor who has many years to build up a significant amount in savings bonds, but then conditions could well change in a few years making TIPS more attractive than I Bonds (as they historically have been much of the time for a long-term investor). Ditto for a 20y Treasury vs. EE bond--the 20y Treasury yield was 3.37% as recently at November 2018, and you didn't need to hold for 20 years to earn that; as a matter of fact, you would have earned a much higher return than the initial from then to now, and could sell at any time to capitalize on that.

Kevin
I still have a few years left on a 5 year 3% add on CD with American Airlines Credit Union that i haven't maxxed out.I would do that first. I just can't bring myself to do the EE bond - The massive early withdrawal penalty is hard to get past.
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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

Post by Angst »

Kevin M wrote: Sat Jul 25, 2020 5:49 pm For any decent sized portfolio, the annual purchase limits on savings bonds (I and EE) make them not very useful for the fixed-income portion of a portfolio. Add to that the necessity to have to deal with the many quirks of TreasuryDirect (as well as possibly ditto for you heirs), and I find them not golden at all.

For these reasons, I sold the last of my I Bonds last year. Sure, 0% or 0.1% real with no term risk (having held for five years) looks great now (compared to TIPS), but the impact on my portfolio would have been so minuscule as to be a rounding error. And during the years I held them, I earned much less than on my direct CDs.

I guess they might make more sense for a younger investor who has many years to build up a significant amount in savings bonds, but then conditions could well change in a few years making TIPS more attractive than I Bonds (as they historically have been much of the time for a long-term investor). Ditto for a 20y Treasury vs. EE bond--the 20y Treasury yield was 3.37% as recently at November 2018, and you didn't need to hold for 20 years to earn that; as a matter of fact, you would have earned a much higher return than the initial from then to now, and could sell at any time to capitalize on that.

Kevin
[OT comment removed by admin LadyGeek]
So I personally don't seem to have what you choose to call a "decent sized portfolio", but I assure you, I find I Bonds and EE Bonds "very useful" as part of my fixed-income portfolio. And I'm certainly not the only middle-aged Boglehead who doesn't rise to your measure of a "decent portfolio". But we still find I Bonds and EE Bonds a useful part of our FI portfolio, and $10,000, let alone x2 (spouses) x2 (EE Bonds and I Bonds) is not chump change for us. [OT comment removed by admin LadyGeek]
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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

Post by 000 »

Angst wrote: Sat Jul 25, 2020 8:14 pm
Kevin M wrote: Sat Jul 25, 2020 5:49 pm For any decent sized portfolio, the annual purchase limits on savings bonds (I and EE) make them not very useful for the fixed-income portion of a portfolio. Add to that the necessity to have to deal with the many quirks of TreasuryDirect (as well as possibly ditto for you heirs), and I find them not golden at all.

For these reasons, I sold the last of my I Bonds last year. Sure, 0% or 0.1% real with no term risk (having held for five years) looks great now (compared to TIPS), but the impact on my portfolio would have been so minuscule as to be a rounding error. And during the years I held them, I earned much less than on my direct CDs.

I guess they might make more sense for a younger investor who has many years to build up a significant amount in savings bonds, but then conditions could well change in a few years making TIPS more attractive than I Bonds (as they historically have been much of the time for a long-term investor). Ditto for a 20y Treasury vs. EE bond--the 20y Treasury yield was 3.37% as recently at November 2018, and you didn't need to hold for 20 years to earn that; as a matter of fact, you would have earned a much higher return than the initial from then to now, and could sell at any time to capitalize on that.

Kevin
[OT comment removed by admin LadyGeek]
So I personally don't seem to have what you choose to call a "decent sized portfolio", but I assure you, I find I Bonds and EE Bonds "very useful" as part of my fixed-income portfolio. And I'm certainly not the only middle-aged Boglehead who doesn't rise to your measure of a "decent portfolio". But we still find I Bonds and EE Bonds a useful part of our FI portfolio, and $10,000, let alone x2 (spouses) x2 (EE Bonds and I Bonds) is not chump change for us. [OT comment removed by admin LadyGeek]
Agreed. 10k/yr is a very meaningful investment for most people. A 90/10 investor could be investing $100,000 per year and still not surpass the I Bond purchase limit.
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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

Post by 2pedals »

I have most of my "bonds" invested in a stable value fund offered in my 401k plan currently yielding 2.4%. Many stable value funds currently offer much better yields than CDs, money market, high yield savings and short and intermediate term bond funds. Before the drop in bond yields this year, I was planning to transfer my 401k to an tIRA to simplify my investments for DW if I predecease her. For tax reasons I waited to transfer. I am glad I didn't transfer. Maybe stable value yield will drop soon but there is nothing wrong with making hay while the sun shines.
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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

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2pedals wrote: Sat Jul 25, 2020 9:57 pm Before the drop in bond yields this year, I was planning to transfer my 401k to an tIRA to simplify my investments for DW if I predecease her. For tax reasons I waited to transfer.
I'm curious what the "tax reasons" could be for delaying such a transfer?
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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

Post by 2pedals »

FIREchief wrote: Sat Jul 25, 2020 10:49 pm
2pedals wrote: Sat Jul 25, 2020 9:57 pm Before the drop in bond yields this year, I was planning to transfer my 401k to an tIRA to simplify my investments for DW if I predecease her. For tax reasons I waited to transfer.
I'm curious what the "tax reasons" could be for delaying such a transfer?
I converted all my tIRA to Roth. The tIRA that had some after tax basis (before Congress signed the Roth IRA into law). The after tax basis is not taxable in the conversion. If I transferred the 401k to the tIRA before the Roth conversions I would not have been able to capture all of the after tax basis. I would have had to use the pro rata rules on the total of amounts of the transferred 401k and tIRA and would not have been able to capture the total after tax basis on partial Roth conversions that I was planning to do.
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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

Post by FIREchief »

2pedals wrote: Sat Jul 25, 2020 11:40 pm
FIREchief wrote: Sat Jul 25, 2020 10:49 pm
2pedals wrote: Sat Jul 25, 2020 9:57 pm Before the drop in bond yields this year, I was planning to transfer my 401k to an tIRA to simplify my investments for DW if I predecease her. For tax reasons I waited to transfer.
I'm curious what the "tax reasons" could be for delaying such a transfer?
I converted all my tIRA to Roth. The tIRA that had some after tax basis (before Congress signed the Roth IRA into law). The after tax basis is not taxable in the conversion. If I transferred the 401k to the tIRA before the Roth conversions I would not have been able to capture all of the after tax basis. I would have had to use the pro rata rules on the total of amounts of the transferred 401k and tIRA and would not have been able to capture the total after tax basis on partial Roth conversions that I was planning to do.
Thanks. That makes perfect sense. I was in the same situation when I FIREd several years ago and did delay any 401k rollovers until I had exhausted the tIRA basis through Roth conversions. :sharebeer
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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

Post by jeffyscott »

Is it possible that the next distribution yield for VFISX will be negative? Or that it will be negative unless they do something like have the otherwise negative distribution yield be reflected in a reduced share price or magically reduce the fund's expenses so that the distribution yield is at least 0 or 0.01% (as they have done with the treasury money market)?

On 6/30 the distribution was 0.02% and that was at a time when SEC yield was 0.17%. As of 7/24, the SEC yield is -0.06% and falling by about 0.01% per day. If that continues, it'll be around -0.1% by the end of the month.
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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

Post by Munir »

jeffyscott wrote: Sun Jul 26, 2020 10:47 am Is it possible that the next distribution yield for VFISX will be negative? Or that it will be negative unless they do something like have the otherwise negative distribution yield be reflected in a reduced share price or magically reduce the fund's expenses so that the distribution yield is at least 0 or 0.01% (as they have done with the treasury money market)?

On 6/30 the distribution was 0.02% and that was at a time when SEC yield was 0.17%. As of 7/24, the SEC yield is -0.06% and falling by about 0.01% per day. If that continues, it'll be around -0.1% by the end of the month.
Would you consider VSGDX (Short Term federal) instead of VFISX? It has a duration of 1.9 years, latest SEC rate is 1.16%; 93% of its bond credit rating is AAA, and Vanguard places in category 1 for safety. VSGDX has more MBS holdings and the details of these holdings can be looked up at M* or Vanguard. Do you think VSGDX's SEC rate will follow VFISX and go as low?
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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

Post by jeffyscott »

Munir wrote: Sun Jul 26, 2020 3:12 pm
jeffyscott wrote: Sun Jul 26, 2020 10:47 am Is it possible that the next distribution yield for VFISX will be negative? Or that it will be negative unless they do something like have the otherwise negative distribution yield be reflected in a reduced share price or magically reduce the fund's expenses so that the distribution yield is at least 0 or 0.01% (as they have done with the treasury money market)?

On 6/30 the distribution was 0.02% and that was at a time when SEC yield was 0.17%. As of 7/24, the SEC yield is -0.06% and falling by about 0.01% per day. If that continues, it'll be around -0.1% by the end of the month.
Would you consider VSGDX (Short Term federal) instead of VFISX? It has a duration of 1.9 years, latest SEC rate is 1.16%; 93% of its bond credit rating is AAA, and Vanguard places in category 1 for safety. VSGDX has more MBS holdings and the details of these holdings can be looked up at M* or Vanguard. Do you think VSGDX's SEC rate will follow VFISX and go as low?
I'm not personally interested in either fund, I'm just curious about how they will deal with a potential negative distribution.
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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

Post by 000 »

jeffyscott wrote: Sun Jul 26, 2020 10:47 am Is it possible that the next distribution yield for VFISX will be negative? Or that it will be negative unless they do something like have the otherwise negative distribution yield be reflected in a reduced share price or magically reduce the fund's expenses so that the distribution yield is at least 0 or 0.01% (as they have done with the treasury money market)?
I don't think Vanguard will start billing VFISX investors. Wouldn't that be funny, to go out to the mailbox and see a bill from Vanguard for your bond investment? I'm sure the negative yield will either come out of NAV or be subsidized.
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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

Post by aj76er »

Kevin M wrote: Thu Jul 23, 2020 4:44 pm
aj76er wrote: Thu Jul 23, 2020 1:47 pm
Kevin M wrote: Wed Jul 22, 2020 7:52 pm So I don't know where the 0.2% figure (or whatever) is even coming from

-Kevin
In another recent bond thread, there was a historical chart of roll yield for VBTLX (US Total Bond Market) going back 40 years and the average was about 0.2 to 0.3%. If I can find it, I’ll post here.
I'd need to see more than just a chart to give it any credence--I'd need to see the methodology that was used to calculate the roll-down return ("roll yield" is not a term commonly applied to bonds, but to futures--it was misused by a forum member some years ago, and unfortunately has propagated among some Bogleheads; just do a web search on "roll yield" and "rolldown return" to see this for yourself). So if you find it, please post a link to the thread (rather than just sharing the chart).

At any rate, the point remains that if you use the current Treasury yield curve, the expected roll-down return is much, much lower than 0.2% to 0.3%, as I hope I've demonstrated clearly.

Kevin
Hi Kevin,

I stumbled across the thread containing the chart for the Total Bond historical rolldown return. Here it is:

viewtopic.php?p=5353592#p5353592
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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

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Kevin M wrote: Thu Jul 23, 2020 4:44 pm I'd need to see more than just a chart to give it any credence--I'd need to see the methodology that was used to calculate the roll-down return ("roll yield" is not a term commonly applied to bonds, but to futures--it was misused by a forum member some years ago, and unfortunately has propagated among some Bogleheads; just do a web search on "roll yield" and "rolldown return" to see this for yourself).
Since I may have been the misusurer I decided to do "just do a web search" but I cheated and used "bond ladder roll down" as the search criteria. At the top of the list after the adds I got:

"What is Bond roll down?
The roll-down return is the amount that interest rates can rise over a specified time period before the current yield exceeds an investor's YTM. The investor who sells the bond will get more than he or she paid for it, in addition to the coupon payments that have already been received.Jul 31, 2020" https://www.investopedia.com/terms/r/rolldownreturn.asp Notice the phrase "rolldownreturn" :D

I'm an engineer. I am used to using the phrase "forget the words, do the math". :beer
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Re: 0.00% Yield on the Vanguard Short-Term Treasury Fund

Post by Kevin M »

aj76er wrote: Sat Aug 08, 2020 12:12 pm
Kevin M wrote: Thu Jul 23, 2020 4:44 pm
aj76er wrote: Thu Jul 23, 2020 1:47 pm
Kevin M wrote: Wed Jul 22, 2020 7:52 pm So I don't know where the 0.2% figure (or whatever) is even coming from

-Kevin
In another recent bond thread, there was a historical chart of roll yield for VBTLX (US Total Bond Market) going back 40 years and the average was about 0.2 to 0.3%. If I can find it, I’ll post here.
I'd need to see more than just a chart to give it any credence--I'd need to see the methodology that was used to calculate the roll-down return ("roll yield" is not a term commonly applied to bonds, but to futures--it was misused by a forum member some years ago, and unfortunately has propagated among some Bogleheads; just do a web search on "roll yield" and "rolldown return" to see this for yourself). So if you find it, please post a link to the thread (rather than just sharing the chart).

At any rate, the point remains that if you use the current Treasury yield curve, the expected roll-down return is much, much lower than 0.2% to 0.3%, as I hope I've demonstrated clearly.

Kevin
Hi Kevin,

I stumbled across the thread containing the chart for the Total Bond historical rolldown return. Here it is:

viewtopic.php?p=5353592#p5353592
Got it. Let's take a look:
Horton wrote: Sun Jul 05, 2020 10:54 am For Vanguard Total Bond, the chart below shows the yield, six year forward looking return, and rolldown return (return - yield) for the past 25 years. The rolldown return averages about 0.20%. Take Total Bond's current yield (1.37%) plus an estimate of the rolldown return (0.20%) and you have an estimate of the 6-year return (1.57%).

Image
I think this defines rolldown return as realized 6-year return minus initial yield (at the beginning of each six-year period). That is not consistent with most definitions of rolldown return, which typically is calculated as the expected price return component based on the current yield curve (assumed to be static), or on an expected future yield curve.

The quoted definition includes both the rolldown component and the component due to changes in yields, which of course we can know only in hindsight.

The problem with using this definition is that it includes the generally declining yields over the period. Not only can we not expect the same going forward (unless we believe that yields can go deeply negative), but we also should look at the current yield curve, not past yield curves.

Kevin
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