World Bonds vs Intermediate US Treasuries

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galeno
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World Bonds vs Intermediate US Treasuries

Post by galeno »

Any reason to hold TWBM vs ITT?

AGGG
ER = 0.10%
YTM = 1.15%
3 yr CAGR = 2.43%
Duration = 7.4 yr
Credit Quality = A

VDTY
ER = 0.07%
YTM = 1.14%
3 yr CAGR = 3.20%
Duration = 7.0 yr
Credit Quality = AAA
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northern_james
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Re: World Bonds vs Intermediate US Treasuries

Post by northern_james »

AGGG is about 40% in US dollars, vs. 100% USD in ITT. So AGGG has more currency diversification. However, I am in Euro zone and have held US treasuries up to now and I'm happy with results (USD strong against Euro).

Interesting: AGGG up a bit more today than ITT on a stocks downturn day, so maybe credit quaility not so relevant?
whereskyle
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Re: World Bonds vs Intermediate US Treasuries

Post by whereskyle »

galeno wrote: Fri Nov 26, 2021 10:42 am Any reason to hold TWBM vs ITT?

AGGG
ER = 0.10%
YTM = 1.15%
3 yr CAGR = 2.43%
Duration = 7.4 yr
Credit Quality = A

VDTY
ER = 0.07%
YTM = 1.14%
3 yr CAGR = 3.20%
Duration = 7.0 yr
Credit Quality = AAA
Greater diversification.

There can be no doubt that a pure US-treasury play has been the best diversifier for stocks since the 1970s.

But there can be doubt that this state of affairs will continue to be the case indefinitely.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
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galeno
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Re: World Bonds vs Intermediate US Treasuries

Post by galeno »

TIPS look better than TWBM too.

IDTP
ER = 0.10%
YTM = 1.13%
3 yr CAGR = 7.40%
Duration = 8.2 yr
Credit Quality = AAA

Here are the corp bonds

VDCP
ER = 0.08%
YTM = 2.27%
3 yr CAGR = 6.06%
Duration = 8.1 yr
Credit Quality = BBB
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asset_chaos
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Re: World Bonds vs Intermediate US Treasuries

Post by asset_chaos »

May be useful to distinguish different types of investors. From previous post I believe galeno (the OP), even though living in Costa Rica and spending---at least some---in CRC, is a US dollar investor. AGG is world bonds hedged to US$, and the US treasury fund is also all in US$. Vanguard's own research into adding non-US bonds hedged to US$ to a US$ bond portfolio shows, at best, a miniscule benefit. On the other hand, for investors who are not US$ investors Vanguard's research into adding hedged global bonds to non-US$ bond portfolios, where the currencies covered were UK pound, euro, yen, canadian $, and aussie $, showed strong benefits---either reduced volatility and/or increased return---from adding global bonds hedged into the investor's local currency.

I hypothesize that the difference Vanguard finds between the US$ and non-US$ investor stems primarily from US treasuries being the asset of choice for "flights to quality" when stock markets go bad and from the general, sort of, global reserve status of the US$. (For some countries unreliability of the local government and inflation may come into play too.)

If the hypothesis is correct, I tentatively conclude that a US$ investors gets little to no benefit from using global hedged bonds because they already naturally have US treasuries in their bond portfolios, while the non-US$ investor may see substantial benefits from using global hededged bonds because that adds US treasuries to their bond portfolios. Also, if the hypothesis is correct, the non-US$ investor may be better off forgetting global hedged bonds and only adding a hedged US treasury fund.
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andrew99999
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Re: World Bonds vs Intermediate US Treasuries

Post by andrew99999 »

asset_chaos wrote: Fri Nov 26, 2021 6:07 pm May be useful to distinguish different types of investors. From previous post I believe galeno (the OP), even though living in Costa Rica and spending---at least some---in CRC, is a US dollar investor. AGG is world bonds hedged to US$, and the US treasury fund is also all in US$. Vanguard's own research into adding non-US bonds hedged to US$ to a US$ bond portfolio shows, at best, a miniscule benefit. On the other hand, for investors who are not US$ investors Vanguard's research into adding hedged global bonds to non-US$ bond portfolios, where the currencies covered were UK pound, euro, yen, canadian $, and aussie $, showed strong benefits---either reduced volatility and/or increased return---from adding global bonds hedged into the investor's local currency.

I hypothesize that the difference Vanguard finds between the US$ and non-US$ investor stems primarily from US treasuries being the asset of choice for "flights to quality" when stock markets go bad and from the general, sort of, global reserve status of the US$. (For some countries unreliability of the local government and inflation may come into play too.)

If the hypothesis is correct, I tentatively conclude that a US$ investors gets little to no benefit from using global hedged bonds because they already naturally have US treasuries in their bond portfolios, while the non-US$ investor may see substantial benefits from using global hededged bonds because that adds US treasuries to their bond portfolios. Also, if the hypothesis is correct, the non-US$ investor may be better off forgetting global hedged bonds and only adding a hedged US treasury fund.
Interesting.
Do you by any chance of any links to that?
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tre3sori
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Re: World Bonds vs Intermediate US Treasuries

Post by tre3sori »

andrew99999 wrote: Fri Nov 26, 2021 8:44 pm Do you by any chance of any links to that?
Vanguard Paper: "Going global with bonds: Considerations for euro area investors"
https://www.vanguardinvestments.dk/docu ... -tlisg.pdf
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TedSwippet
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Re: World Bonds vs Intermediate US Treasuries

Post by TedSwippet »

asset_chaos wrote: Fri Nov 26, 2021 6:07 pm May be useful to distinguish different types of investors. From previous post I believe galeno (the OP), even though living in Costa Rica and spending---at least some---in CRC, is a US dollar investor. AGG is world bonds hedged to US$, and the US treasury fund is also all in US$.
Is there not perhaps quite a distinction though between a USD based investor, typically a US citizen or resident, and an investor who uses the USD for investing convenience but whose home currency is neither USD nor pegged to (or closely correlated with) USD?
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galeno
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Re: World Bonds vs Intermediate US Treasuries

Post by galeno »

AGGG is NOT currency hedged. There are several hedged versions.

We spend 100% of our income in Costa Rica. The buy/sell spread for USD 2 CRC is 2.1%. Then we have to pay a VAT of 13% for most goods and services.

Back to bonds. ITT have performed better than TWBM over the last 3 years. It also has a higher credit rating. ITT is also probably better ballast too. The only potential advantage of TWBM I can see is the currency diversification.
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GAAP
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Re: World Bonds vs Intermediate US Treasuries

Post by GAAP »

I'm not in your situation, but I use a global fond fund to diversify against the risk of any single economic failure -- in particular the failure of the USA economy. I don't buy bonds for the rate of return.

I use global equity for the same diversification reasons.
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Re: World Bonds vs Intermediate US Treasuries

Post by aj76er »

We recently switched from BND to BNDW (as well as going mostly to full global market weight for equities).

Backtesting has its limitations, so unclear what will perform better moving forward; but I prefer the extra diversity of currency and interest rate movements that BNDW offers. I also believe U.S. investors will benefit from a positive hedge return from the countries that have lower yielding bonds (which results in a “free lunch” of sorts).

Having said that, if I didn’t have access to a “single” fund choice (and instead had to hold BND + BNDX), then I probably wouldn’t do it.

FWIW, we also hold I-Bonds, a stable value fund, TIPS (SCHP), and some cash. So BNDW is only one part of our fixed income holdings. Our primary goal with fixed income is as a “store of value”. Secondly it is for general rebalancing with equities. Therefore I give higher weight to the diversification benefits of BNDW than to the historical flight-to-quality behavior of ITT or LTT.
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Re: World Bonds vs Intermediate US Treasuries

Post by Bernmaster »

galeno wrote: Fri Nov 26, 2021 10:42 am Any reason to hold TWBM vs ITT?
Absolutely - TWBM is more diversified which protects you if something goes wrong in the US. In Europe, many people hold European government bonds even though they have negative nominal yields. This was not the case in the past and we are happy to have the US bonds in TWBM (currency hedged). The same could be true the other way around.
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Moneyseeker
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Re: World Bonds vs Intermediate US Treasuries

Post by Moneyseeker »

İ am asleep struggling into this. My portfolio is 60/40 and equity side is simple , VWRD. For bonds, i decide to go 10% IEMB,10%IDTM and 20%AGGU. I believe this is this best allocation for me
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galeno
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Re: World Bonds vs Intermediate US Treasuries

Post by galeno »

From my POV you have a 70/30 port. IEMB has equity-like volatility.

Why not 40% IDTM? Or 40% AGGU?
Moneyseeker wrote: Tue Nov 30, 2021 11:27 am İ am asleep struggling into this. My portfolio is 60/40 and equity side is simple , VWRD. For bonds, i decide to go 10% IEMB,10%IDTM and 20%AGGU. I believe this is this best allocation for me
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Moneyseeker
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Re: World Bonds vs Intermediate US Treasuries

Post by Moneyseeker »

galeno wrote: Tue Nov 30, 2021 12:44 pm From my POV you have a 70/30 port. IEMB has equity-like volatility.

Why not 40% IDTM? Or 40% AGGU?
Moneyseeker wrote: Tue Nov 30, 2021 11:27 am İ am asleep struggling into this. My portfolio is 60/40 and equity side is simple , VWRD. For bonds, i decide to go 10% IEMB,10%IDTM and 20%AGGU. I believe this is this best allocation for me
Why not 40% IDTM? Or 40% AGGU?
Why not %40 AGGU ? Because during market crash US treasures perform Better and they work as equity hedge. I can use us treasuries ETF for my life expenses in case of long and extended bear market. In that case US bonds will go up as they did before.
Why not %40 IEF ? Because I believe diversification is better than only one country’s 10 year bond.
EM bonds will go down when equites turn down, this is true. But they are not so volatile as equities. Even in 2008, EM bonds went down about 25 % while sp500 50% .in some point you may be right , i made 30% - 70% not 40 % - 60% but EM bonds should be part of diversification, too IMO.
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galeno
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Re: World Bonds vs Intermediate US Treasuries

Post by galeno »

@moneyseeker

There is diversification and there is "diworsification". Most Bogleheads look at non-investment grade bonds as the latter.

50% TWSM + 50% ITT (or TWBM) is better than 100% EM bonds.
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