Understanding Bond fund yelds - VGSH for example

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Goldilocks
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Understanding Bond fund yelds - VGSH for example

Post by Goldilocks »

I need your guidance to gain a deeper understanding of Bond funds. I am considering buying the Vanguard Short-Term Treasury ETF (VGSH) and my time horizon is about 3 years.

The current VGSH 30 day Securities and Exchange Commission (SEC) yield is about 3.5%. Sept 7th's monthly dividend was only about 6 cents/$58/Share = 0.1% this is only about a 0.05% increase from the August dividends. How long, hypothetically if interest rates remain unchanged, could it take for this fund to finally pay monthly dividends that will yield 3.5% annually?
The 1st mix was too volatile, and the 2nd was too idle. But the 3rd allocation was just right!
marshall
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Re: Understanding Bond fund yelds - VGSH for example

Post by marshall »

I asked a similar question in a different thread. I ended up selling VGSH and buying one year Treasury Bonds with a 3.96% yield.
ebeb
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Re: Understanding Bond fund yelds - VGSH for example

Post by ebeb »

Bond fund monthly distribution yield could be higher or lower than the SEC yield in general. The combination of the monthly distribution, current NAV price, duration and expense ratio would be used to calculate the SEC yield I believe. :shock:
60% VOO | 35% BND | 5% TBILL+EF | "Time in the market is better than timing the market" - Anon
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drumboy256
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Re: Understanding Bond fund yelds - VGSH for example

Post by drumboy256 »

I'll save everyone the trouble of using Treasury Direct and just use the BlackRock iBond ETF and build your ladder with a low ER here: https://www.ishares.com/us/strategies/b ... nd-ladders

Depending on duration, plan out one year or how many years you'd like to hold and buy accordingly.
Promise is one thing. Fulfilling that promise is quite another. - Sir Alex Ferguson | // Merri-Bogle WW SCV + Chill
acegolfer
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Re: Understanding Bond fund yelds - VGSH for example

Post by acegolfer »

Goldilocks wrote: Sat Sep 17, 2022 4:57 pm How long, hypothetically if interest rates remain unchanged, could it take for this fund to finally pay monthly dividends that will yield 3.5% annually?
Can't answer that because 30-day SEC yield is not a guaranteed return. And monthly dividends may not even be constant, even if all factors stay constant.
chem
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Re: Understanding Bond fund yelds - VGSH for example

Post by chem »

this link does not directly answer the OP's specific question but is generally useful for thinking about the topic:

"July 25, 2022 | Expert Perspective
Unpack the challenges of rising bond-fund yields"

https://advisors.vanguard.com/insights/ ... fundyields

it discusses VGSH as the canonical example
billyt
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Re: Understanding Bond fund yelds - VGSH for example

Post by billyt »

Great linked article succinctly answers questions in the last 1,000 posts about bonds!
billyt
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Re: Understanding Bond fund yelds - VGSH for example

Post by billyt »

"Changes in the SEC yield for VGSH typically follow the YTM because of the nature of the calculation. SEC yield requires averaging the yield to maturity of the fund’s holdings over the prior 30 days and accounts for fund expenses."
chem
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Re: Understanding Bond fund yelds - VGSH for example

Post by chem »

billyt wrote: Thu Sep 22, 2022 7:55 am Great linked article succinctly answers questions in the last 1,000 posts about bonds!
yeah... the quote most relevant to the OP may be this one:

"The yield measure that lags most, the ETF’s distribution yield hasn’t yet caught up with the rise in rates. In a falling rate environment, the opposite occurs, and the distribution yield may be higher than other yield measures."
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vineviz
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Re: Understanding Bond fund yelds - VGSH for example

Post by vineviz »

drumboy256 wrote: Sat Sep 17, 2022 10:18 pm I'll save everyone the trouble of using Treasury Direct and just use the BlackRock iBond ETF and build your ladder with a low ER here: https://www.ishares.com/us/strategies/b ... nd-ladders

Depending on duration, plan out one year or how many years you'd like to hold and buy accordingly.
+1

I don't know why people ignore these funds, which are specifically designed to meet the needs of investors who "need the money in X years".
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
JohnFromPNW
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Re: Understanding Bond fund yelds - VGSH for example

Post by JohnFromPNW »

vineviz wrote: Thu Sep 22, 2022 8:32 am
drumboy256 wrote: Sat Sep 17, 2022 10:18 pm I'll save everyone the trouble of using Treasury Direct and just use the BlackRock iBond ETF and build your ladder with a low ER here: https://www.ishares.com/us/strategies/b ... nd-ladders

Depending on duration, plan out one year or how many years you'd like to hold and buy accordingly.
+1

I don't know why people ignore these funds, which are specifically designed to meet the needs of investors who "need the money in X years".
I did not know these funds existed. I assume the "i" in "iBonds" in the fund name is for iShares, not because these are I-Bonds? Strikes me as a little confusing if not misleading.

I assume using Fidelity's bond ladder (and believe others have similar options), one could fairly easily do this themselves, no?
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vineviz
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Re: Understanding Bond fund yelds - VGSH for example

Post by vineviz »

JohnFromPNW wrote: Thu Sep 22, 2022 11:30 am
vineviz wrote: Thu Sep 22, 2022 8:32 am
drumboy256 wrote: Sat Sep 17, 2022 10:18 pm I'll save everyone the trouble of using Treasury Direct and just use the BlackRock iBond ETF and build your ladder with a low ER here: https://www.ishares.com/us/strategies/b ... nd-ladders

Depending on duration, plan out one year or how many years you'd like to hold and buy accordingly.
+1

I don't know why people ignore these funds, which are specifically designed to meet the needs of investors who "need the money in X years".
I did not know these funds existed. I assume the "i" in "iBonds" in the fund name is for iShares, not because these are I-Bonds? Strikes me as a little confusing if not misleading.

I assume using Fidelity's bond ladder (and believe others have similar options), one could fairly easily do this themselves, no?
Series I savings bonds are not actually called "I-Bonds". If that's confusing to people, I don't think the fault lies with BlackRock but rather with folks who prefer not to type out "Series I savings bonds" over and over again.

Building a diversified portfolio of corporate or municipal bonds requires large amounts of capital, and the bid-ask spreads on individual non-Treasury bonds for individual investors are virtually predatory. Either way, a target maturity ETF is definitely simpler to implement than a portfolio consisting of dozens or hundreds of individual bonds.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
dbr
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Re: Understanding Bond fund yelds - VGSH for example

Post by dbr »

vineviz wrote: Thu Sep 22, 2022 11:40 am
JohnFromPNW wrote: Thu Sep 22, 2022 11:30 am
vineviz wrote: Thu Sep 22, 2022 8:32 am
drumboy256 wrote: Sat Sep 17, 2022 10:18 pm I'll save everyone the trouble of using Treasury Direct and just use the BlackRock iBond ETF and build your ladder with a low ER here: https://www.ishares.com/us/strategies/b ... nd-ladders

Depending on duration, plan out one year or how many years you'd like to hold and buy accordingly.
+1

I don't know why people ignore these funds, which are specifically designed to meet the needs of investors who "need the money in X years".
I did not know these funds existed. I assume the "i" in "iBonds" in the fund name is for iShares, not because these are I-Bonds? Strikes me as a little confusing if not misleading.

I assume using Fidelity's bond ladder (and believe others have similar options), one could fairly easily do this themselves, no?
Series I savings bonds are not actually called "I-Bonds". If that's confusing to people, I don't think the fault lies with BlackRock but rather with folks who prefer not to type out "Series I savings bonds" over and over again.

Building a diversified portfolio of corporate or municipal bonds requires large amounts of capital, and the bid-ask spreads on individual non-Treasury bonds for individual investors are virtually predatory. Either way, a target maturity ETF is definitely simpler to implement than a portfolio consisting of dozens or hundreds of individual bonds.
Point well taken, but confusing a trade name iShares with I bond is probably more on the reader. Of course we all know that both iShares and iBonds are Apple products and I am not an Apple product.
JohnFromPNW
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Re: Understanding Bond fund yelds - VGSH for example

Post by JohnFromPNW »

vineviz wrote: Thu Sep 22, 2022 11:40 am
JohnFromPNW wrote: Thu Sep 22, 2022 11:30 am
vineviz wrote: Thu Sep 22, 2022 8:32 am
drumboy256 wrote: Sat Sep 17, 2022 10:18 pm I'll save everyone the trouble of using Treasury Direct and just use the BlackRock iBond ETF and build your ladder with a low ER here: https://www.ishares.com/us/strategies/b ... nd-ladders

Depending on duration, plan out one year or how many years you'd like to hold and buy accordingly.
+1

I don't know why people ignore these funds, which are specifically designed to meet the needs of investors who "need the money in X years".
I did not know these funds existed. I assume the "i" in "iBonds" in the fund name is for iShares, not because these are I-Bonds? Strikes me as a little confusing if not misleading.

I assume using Fidelity's bond ladder (and believe others have similar options), one could fairly easily do this themselves, no?
Series I savings bonds are not actually called "I-Bonds". If that's confusing to people, I don't think the fault lies with BlackRock but rather with folks who prefer not to type out "Series I savings bonds" over and over again.

Building a diversified portfolio of corporate or municipal bonds requires large amounts of capital, and the bid-ask spreads on individual non-Treasury bonds for individual investors are virtually predatory. Either way, a target maturity ETF is definitely simpler to implement than a portfolio consisting of dozens or hundreds of individual bonds.
Fair points, I was considering treasuries only in my statement regarding building a bond ladder.

Funny comment about them being a product of Apple. :sharebeer
JohnFromPNW
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Re: Understanding Bond fund yelds - VGSH for example

Post by JohnFromPNW »

dbr wrote: Thu Sep 22, 2022 11:44 am
vineviz wrote: Thu Sep 22, 2022 11:40 am
JohnFromPNW wrote: Thu Sep 22, 2022 11:30 am
vineviz wrote: Thu Sep 22, 2022 8:32 am
drumboy256 wrote: Sat Sep 17, 2022 10:18 pm I'll save everyone the trouble of using Treasury Direct and just use the BlackRock iBond ETF and build your ladder with a low ER here: https://www.ishares.com/us/strategies/b ... nd-ladders

Depending on duration, plan out one year or how many years you'd like to hold and buy accordingly.
+1

I don't know why people ignore these funds, which are specifically designed to meet the needs of investors who "need the money in X years".
I did not know these funds existed. I assume the "i" in "iBonds" in the fund name is for iShares, not because these are I-Bonds? Strikes me as a little confusing if not misleading.

I assume using Fidelity's bond ladder (and believe others have similar options), one could fairly easily do this themselves, no?
Series I savings bonds are not actually called "I-Bonds". If that's confusing to people, I don't think the fault lies with BlackRock but rather with folks who prefer not to type out "Series I savings bonds" over and over again.

Building a diversified portfolio of corporate or municipal bonds requires large amounts of capital, and the bid-ask spreads on individual non-Treasury bonds for individual investors are virtually predatory. Either way, a target maturity ETF is definitely simpler to implement than a portfolio consisting of dozens or hundreds of individual bonds.
Point well taken, but confusing a trade name iShares with I bond is probably more on the reader. Of course we all know that both iShares and iBonds are Apple products and I am not an Apple product.
The first result when googling (at least for me) the term "I Bonds" is a link to the Treasury Direct website for Series I Savings Bonds. So yes, it's likely my fault for not knowing better, but not sure it indicates total stupidity on my part (but may be too stupid to see that it does).
dbr
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Re: Understanding Bond fund yelds - VGSH for example

Post by dbr »

JohnFromPNW wrote: Thu Sep 22, 2022 12:48 pm
dbr wrote: Thu Sep 22, 2022 11:44 am
vineviz wrote: Thu Sep 22, 2022 11:40 am
JohnFromPNW wrote: Thu Sep 22, 2022 11:30 am
vineviz wrote: Thu Sep 22, 2022 8:32 am

+1

I don't know why people ignore these funds, which are specifically designed to meet the needs of investors who "need the money in X years".
I did not know these funds existed. I assume the "i" in "iBonds" in the fund name is for iShares, not because these are I-Bonds? Strikes me as a little confusing if not misleading.

I assume using Fidelity's bond ladder (and believe others have similar options), one could fairly easily do this themselves, no?
Series I savings bonds are not actually called "I-Bonds". If that's confusing to people, I don't think the fault lies with BlackRock but rather with folks who prefer not to type out "Series I savings bonds" over and over again.

Building a diversified portfolio of corporate or municipal bonds requires large amounts of capital, and the bid-ask spreads on individual non-Treasury bonds for individual investors are virtually predatory. Either way, a target maturity ETF is definitely simpler to implement than a portfolio consisting of dozens or hundreds of individual bonds.
Point well taken, but confusing a trade name iShares with I bond is probably more on the reader. Of course we all know that both iShares and iBonds are Apple products and I am not an Apple product.
The first result when googling (at least for me) the term "I Bonds" is a link to the Treasury Direct website for Series I Savings Bonds. So yes, it's likely my fault for not knowing better, but not sure it indicates total stupidity on my part (but may be too stupid to see that it does).
I don't see any stupidity on anyone's part but it does take time to sort out the short hand nomenclature and the overlapping use of similar symbols. We can also mention that the S in TIPS is not a plural but the s at the end of Securities is a plural. And so on. It is also true that Notes and Bills are actually bonds but they are not Bonds and, back to the original "confusion" that Savings Bonds are neither Notes, nor Bonds, nor Bills.
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vineviz
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Re: Understanding Bond fund yelds - VGSH for example

Post by vineviz »

JohnFromPNW wrote: Thu Sep 22, 2022 12:48 pm The first result when googling (at least for me) the term "I Bonds" is a link to the Treasury Direct website for Series I Savings Bonds. So yes, it's likely my fault for not knowing better, but not sure it indicates total stupidity on my part (but may be too stupid to see that it does).
Yeah I didn't mean to imply any stupidity on anyone's part, and certainly not yours.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: Understanding Bond fund yelds - VGSH for example

Post by whodidntante »

JohnFromPNW wrote: Thu Sep 22, 2022 11:30 am
vineviz wrote: Thu Sep 22, 2022 8:32 am
drumboy256 wrote: Sat Sep 17, 2022 10:18 pm I'll save everyone the trouble of using Treasury Direct and just use the BlackRock iBond ETF and build your ladder with a low ER here: https://www.ishares.com/us/strategies/b ... nd-ladders

Depending on duration, plan out one year or how many years you'd like to hold and buy accordingly.
+1

I don't know why people ignore these funds, which are specifically designed to meet the needs of investors who "need the money in X years".
I did not know these funds existed. I assume the "i" in "iBonds" in the fund name is for iShares, not because these are I-Bonds? Strikes me as a little confusing if not misleading.

I assume using Fidelity's bond ladder (and believe others have similar options), one could fairly easily do this themselves, no?
In order to make the name less misleading, they should rename them T-bonds. :happy
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grabiner
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Re: Understanding Bond fund yelds - VGSH for example

Post by grabiner »

The SEC yield of a fund is based on the yield to maturity of its bonds (minus expenses). The distribution is based on the yield that the bonds had when the fund bought them. Thus, if interest rates have risen since a fund bought a bond, the distribution on that bond will be lower than the SEC yield. However, this is not a loss to you; if rates rose recently, the fund now holds a bond that is at a discount to par value, so you will make up the difference between distributions and SEC yield as the bond price rises back towards par.

If interest rates remain stable, the SEC and distribution yield on a fund would become equal when all the bonds in the fund have been bought after the last change.
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