Treasury Ladder vs. Index

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Doc
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Treasury Ladder vs. Index

Post by Doc » Thu Oct 05, 2017 1:47 pm

Sometimes there have been comparisons between a Treasury ladder and a Treasury index fund. Usually we think of them as more or less the same. But they have different distributions of maturities.

Here's an example using the percentages of maturities for various time ranges as used per Morningstar.

Bond Maturity Breakdown

Code: Select all

ETF->		SCHO	IEI	ITE	SCHR	Ladder
Index->		1-3	3-7	1-10	3-10	1-10
					
1 to 3 Years	100 	0 	36 	0 	22
					
3 to 5 Years	0 	59 	34 	48 	22
					
5 to 7 Years	0 	37 	17 	30 	22
					
7 to 10 Years	0 	4 	13 	21 	33

So what are the implications of the differences? Any thoughts.
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Grt2bOutdoors
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Re: Treasury Ladder vs. Index

Post by Grt2bOutdoors » Thu Oct 05, 2017 2:18 pm

Rather than maturities, I'd be interested in the actual duration of holdings within the 3-5 year tranche. It's not readily apparent what proportion of the bonds maturing actually terminate in year 3, year 4 or year 5. A ladder is quite transparent, you know exactly when the maturity date is, what the interest rate is and you can easily calculate the duration per band. I don't think the ETF is quite so simple.
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Doc
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Re: Treasury Ladder vs. Index

Post by Doc » Thu Oct 05, 2017 2:30 pm

Grt2bOutdoors wrote:
Thu Oct 05, 2017 2:18 pm
Rather than maturities, I'd be interested in the actual duration of holdings within the 3-5 year tranche. It's not readily apparent what proportion of the bonds maturing actually terminate in year 3, year 4 or year 5. A ladder is quite transparent, you know exactly when the maturity date is, what the interest rate is and you can easily calculate the duration per band. I don't think the ETF is quite so simple.
Given the low coupons currently I don't think the duration/maturity difference is a significant factor in the ladder/index comparison at least though ten years.

Besides I have no idea where I can get the duration breakdown for the ETF's.
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jebmke
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Re: Treasury Ladder vs. Index

Post by jebmke » Thu Oct 05, 2017 2:55 pm

Treasuries are easy to trade. The only ones I own are individual notes (Tips). I think if the yield curve becomes significantly more or less flat then the funds will behave differently based on their composition.
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