nisiprius wrote:GNMAs have a special risk factor not present in most bonds.
abuss368 wrote:GNMA are a narrow part of the bond market with additional risks that Vanguard discloses (i.e. prepayment risks).
TBM also has "prepayment risk".pkcrafter wrote:GNMAs are riskier than other high quality bonds as has been noted by others.
Vanguard's "Mid-Term Treasury Grade" bond funds
(taxable funds as of 03/31/2012)
VFIIX (GNMA Fund Investor Shares)
"The fund is broadly diversified across the universe of GNMA mortgage-backed securities. The advisor seeks to mitigate prepayment risk by moderately adjusting the coupon or maturity structure in anticipation of interest rate changes. Historically the fund’s volatility has been lower relative to that of the Barclays Capital U.S. Aggregate Bond Index due to the fund’s short- to intermediate-term average duration. The fund’s investments in U.S. government agency securities do not prevent fluctuations in share price."
10yr Standard deviation 2.91% <<-- LOWEST
10yr Sharpe ratio 1.35 <<-- HIGHEST
VIPSX (Inflation-Protect Sec Inv)
"The fund’s long-term volatility is expected to be lower than that of conventional bond funds , because prices of inflation-protected securities respond to changes in real interest rates, not to changes in expected inflation. Although the fund’s average maturity is intermediate-term, the fund’s lower sensitivity to changes in nominal interest rates is consistent with a shorter duration. Credit risk is low because the fund invests primarily in U.S. government and agency securities. The income component of returns is likely to fluctuate more than in conventional bond funds because interest payments are adjusted for inflation."
10yr Standard deviation 6.85% <<-- HIGHEST
10yr Sharpe ratio 0.79 <<-- LOWEST
VBIIX (Inter-Term Bond Index Inv)
"The fund’s risk profile is similar to that of the intermediate-term, investment-grade U.S. fixed income market. Interest rate risk and income risk are moderate, reflecting the fund’s intermediate duration. Credit risk is low because the fund purchases only bonds issued by the U.S. Treasury or by corporations whose securities are rated as investment-grade."
10yr Standard deviation 5.75%
10yr Sharpe ratio 0.86
VFITX (Inter-Term Treasury Inv)
"The fund is subject to moderate interest-rate risk, given its intermediate duration. The advisor will maintain intermediate duration, while making adjustments to duration based on factors such as interest rates and the yield curve. Credit default risk is very low because the fund owns primarily U.S. government and agency securities. The fund’s investments in U.S. Treasury or agency securities do not prevent fluctuations in share price."
10yr Standard deviation 5.22%
10yr Sharpe ratio 0.86
VBMFX (Total Bond Mkt Index Inv)
"The fund’s risk profile is similar to that of the broad, investment-grade U.S. fixed income market. Interest rate risk and income risk are moderate, reflecting the fund’s intermediate duration. Credit risk is low because the fund primarily purchases bonds issued by the U.S. Treasury or by corporations whose securities are rated as investment-grade. Additionally, to the extent that it invests in mortgage-backed securities, the fund is subject to moderate prepayment/call risk."
10yr Standard deviation 3.67%
10yr Sharpe ratio 1.01
Of these five bond funds, GNMA has LOWEST SD & HIGHEST Sharpe ratio.
Confused,
Mike