VWITX (Vanguard Intermediate Tax Exempt) Yields

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bubbly
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VWITX (Vanguard Intermediate Tax Exempt) Yields

Post by bubbly » Sat Aug 01, 2020 1:21 pm

I've been taking an annual review of my portfolio and noticed that the most recent distribution yield of VWITX (Vanguard Tax Exempt Intermediate Term Bond fund) is slightly higher than the Total Bond Market yields (2.31% vs 2.28%).

So it leads me to this question:
1) Is the yield higher at this point to compensate for the higher fluctuation of the price of the tax exempt fund, ie VWITX is viewed as slightly more "risky" than the total bond fund?

1) Does this higher yield make the tax exempt fund preferable in taxable accounts for most tax brackets for the time being, considering it's fairly hard to predict the NAV fluctuations and the yield vs duration are the only sure metrics to go by?

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Taylor Larimore
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Re: VWITX (Vanguard Intermediate Tax Exempt) Yields

Post by Taylor Larimore » Sat Aug 01, 2020 1:47 pm

bubbly wrote:
Sat Aug 01, 2020 1:21 pm
I've been taking an annual review of my portfolio and noticed that the most recent distribution yield of VWITX (Vanguard Tax Exempt Intermediate Term Bond fund) is slightly higher than the Total Bond Market yields (2.31% vs 2.28%).

So it leads me to this question:
1) Is the yield higher at this point to compensate for the higher fluctuation of the price of the tax exempt fund, ie VWITX is viewed as slightly more "risky" than the total bond fund?

1) Does this higher yield make the tax exempt fund preferable in taxable accounts for most tax brackets for the time being, considering it's fairly hard to predict the NAV fluctuations and the yield vs duration are the only sure metrics to go by?
bibbly:

Despite the Bond Rule that a higher bond yield nearly always means higher bond risk" a 0.03% difference in yield is meaningless.

Best wishes
Taylor
Jack Bogle's Words of Wisdom: “Eliminate emotion from your investment program. Have rational expectations for future returns and avoid changing those expectations in response to the ephemeral noise coming from Wall Street.”
"Simplicity is the master key to financial success." -- Jack Bogle

sycamore
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Re: VWITX (Vanguard Intermediate Tax Exempt) Yields

Post by sycamore » Sat Aug 01, 2020 1:52 pm

bubbly wrote:
Sat Aug 01, 2020 1:21 pm
...
1) Is the yield higher at this point to compensate for the higher fluctuation of the price of the tax exempt fund, ie VWITX is viewed as slightly more "risky" than the total bond fund?
bubbly,

I'm not sure about the "higher fluctuation of the price" explanation. Maybe/maybe not. But it makes sense to me that the market is pricing munis as if they have some risk beyond that in Total Bond / investment grade bonds. The general story about that risk is default or municipal financial difficulties/bankruptcies related to COVID. Not everyone buys into that story of course.
bubbly wrote:
Sat Aug 01, 2020 1:21 pm
1) Does this higher yield make the tax exempt fund preferable in taxable accounts for most tax brackets for the time being, considering it's fairly hard to predict the NAV fluctuations and the yield vs duration are the only sure metrics to go by?
I wouldn't base my decision on just the yield / duration like you seem to be suggesting (?) but VWIUX sure seems like a win as long you accept the usual muni bond risks but also any COVID-related risk.

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bubbly
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Re: VWITX (Vanguard Intermediate Tax Exempt) Yields

Post by bubbly » Sat Aug 01, 2020 2:59 pm

Taylor Larimore wrote:
Sat Aug 01, 2020 1:47 pm
bubbly wrote:
Sat Aug 01, 2020 1:21 pm
I've been taking an annual review of my portfolio and noticed that the most recent distribution yield of VWITX (Vanguard Tax Exempt Intermediate Term Bond fund) is slightly higher than the Total Bond Market yields (2.31% vs 2.28%).

So it leads me to this question:
1) Is the yield higher at this point to compensate for the higher fluctuation of the price of the tax exempt fund, ie VWITX is viewed as slightly more "risky" than the total bond fund?

1) Does this higher yield make the tax exempt fund preferable in taxable accounts for most tax brackets for the time being, considering it's fairly hard to predict the NAV fluctuations and the yield vs duration are the only sure metrics to go by?
bibbly:

Despite the Bond Rule that a higher bond yield nearly always means higher bond risk" a 0.03% difference in yield is meaningless.

Best wishes
Taylor
Jack Bogle's Words of Wisdom: “Eliminate emotion from your investment program. Have rational expectations for future returns and avoid changing those expectations in response to the ephemeral noise coming from Wall Street.”
Taylor,
I do agree with you there. I have held this tax exempt fund for 5+ years and TBM in my 401k during that time as well. My main point is that the yield is higher for the tax exempt AND the yields are tax exempt federally so I see no advantage of holding TBM in taxable currently unless one were to point to bond diversification. This tax exempt fund has been very good for me so far as a core holding for an extended emergency fund. Am I overlooking any other factors? I guess I am just surprised to see a tax exempt bond fund have higher yields than a comparable duration non-tax exempt bond fund.

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Re: VWITX (Vanguard Intermediate Tax Exempt) Yields

Post by hudson » Sat Aug 01, 2020 3:40 pm

bubbly,

I believe that VWITX is safer than the total bond fund. It's holdings are around 90% AAA/AA/A. I believe that munis fall just behind US government bonds in safety.
I think that a total bond fund would be a little less safe because of it's investment grade corporate bonds.
I like VWITX and have held that or the other version of the same for years.
I would always place VWITX/VWIUX in a taxable account and total bond in a tax advantaged account....depending on tax brackets.

venkman
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Re: VWITX (Vanguard Intermediate Tax Exempt) Yields

Post by venkman » Sun Aug 02, 2020 4:25 am

bubbly wrote:
Sat Aug 01, 2020 1:21 pm
I've been taking an annual review of my portfolio and noticed that the most recent distribution yield of VWITX (Vanguard Tax Exempt Intermediate Term Bond fund) is slightly higher than the Total Bond Market yields (2.31% vs 2.28%).
Distribution yield is not a good way to compare funds or predict future total return. Both of these funds have a distribution yield that is significantly higher than their SEC yield (1.08% for VWITX and 1.17% for VBTLX), which means you can expect the NAV of both funds to decline, as their premium bonds mature and move back toward par value.

Based on their SEC yields, VWITX currently looks attractive for a taxable account relative to VBTLX. On the other hand, there's still a ton of uncertainty out there over COVID-19, and having 60% of your bonds guaranteed by the US government might well be worth it.

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grabiner
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Re: VWITX (Vanguard Intermediate Tax Exempt) Yields

Post by grabiner » Sun Aug 02, 2020 10:02 am

Taylor Larimore wrote:
Sat Aug 01, 2020 1:47 pm
bubbly wrote:
Sat Aug 01, 2020 1:21 pm
I've been taking an annual review of my portfolio and noticed that the most recent distribution yield of VWITX (Vanguard Tax Exempt Intermediate Term Bond fund) is slightly higher than the Total Bond Market yields (2.31% vs 2.28%).
bibbly:

Despite the Bond Rule that a higher bond yield nearly always means higher bond risk" a 0.03% difference in yield is meaningless.
However, this difference is not just 0.03%. A muni bond with the same yield as a taxable bond should be substantially riskier, since it has a higher after-tax yield.

The right number to compare is the SEC yield, as this is based on the yield to maturity, which is what you would receive if you bought the bonds now. The SEC yield of Admiral shares of Intermediate-Term Tax-Exempt is 1.16%, and the SEC yield of Total Bond Market is 1.17%. Therefore, investors do consider the muni fund to be somewhat riskier than a Total Bond Market fund which is 63% backed by the government.
Wiki David Grabiner

am
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Re: VWITX (Vanguard Intermediate Tax Exempt) Yields

Post by am » Sun Aug 02, 2020 10:37 am

Municipalities budgets have been hit very hard from income and expense side. It’s not hard for me to see why muni yields are what they are compared to total bond. Were it not for federal backing of muni markets and liquidity facilities, munis would probably have higher yield. Total bond has 60% gov. debt, which is some of the safest in the world, issued by a gov. that has unlimited money printing capabilities (for now).

hudson
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SEC Yield and Distribution Yield

Post by hudson » Sun Aug 02, 2020 11:37 am

I agree with most everything that's been said about SEC vs Distribution Yields.
If you are going to buy a fund and forget about it and just hold it long term, yes look at the SEC Yield. If you are comparing funds, yes use SEC Yield.
If you are going to buy a fund and keep an eye on it, distribution yield might be a good number to use. Why? As you know, that's what you were paid for holding that fund at the end of last month. Next month, you'll likely get about the same amount...maybe a little less. Since distribution yield is dependent on the share price, one should take that into account.

Back to VWITX: Maybe look at the distributions for VWITX. https://investor.vanguard.com/mutual-fu ... ions/vwitx
It's been paying about 3 cents a share since at least Feb. 2018. It's down a little, and in the future, it will likely go down, but that's great income. I own it and watch it; if it drops down to the SEC Yield, maybe I'll find a better deal? I'll keep it as long as it pays well...after taxes.

Personal Distribution Yield: If you bought VWITX several years ago, your personal distribution yield might be even higher than Vanguard's published yield.

Bottom Line: SEC Yield is the king; but the distribution yield is worth a look.

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Re: VWITX (Vanguard Intermediate Tax Exempt) Yields

Post by drk » Sun Aug 02, 2020 12:02 pm

hudson wrote:
Sat Aug 01, 2020 3:40 pm
I believe that VWITX is safer than the total bond fund. It's holdings are around 90% AAA/AA/A. I believe that munis fall just behind US government bonds in safety.
This would usually be the case, but the corporate bonds in Total Bond currently have an implicit bid from the Fed while munis do not.

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Re: VWITX (Vanguard Intermediate Tax Exempt) Yields

Post by hudson » Sun Aug 02, 2020 12:26 pm

drk wrote:
Sun Aug 02, 2020 12:02 pm
hudson wrote:
Sat Aug 01, 2020 3:40 pm
I believe that VWITX is safer than the total bond fund. It's holdings are around 90% AAA/AA/A. I believe that munis fall just behind US government bonds in safety.
This would usually be the case, but the corporate bonds in Total Bond currently have an implicit bid from the Fed while munis do not.
You are probably correct.
Bottom line: Either Total Bond or VWITX are pretty good choices. Neither is as safe as treasuries or CDs, but both are OK. For me, I do hold VWITX/VWIUX in taxable and total bond in tax advantaged.

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Toons
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Re: VWITX (Vanguard Intermediate Tax Exempt) Yields

Post by Toons » Sun Aug 02, 2020 12:31 pm

I can't answer your questions intelligently.
I can say I Exchanged My Funds in Total Bond
to Intermediate Term Tax Exempt(VWIUX)about 7 years ago(not in a high tax bracket)
And continued to and still do invest in the fund in our taxable account.
Regarding yield and taxes(exempt)
The move has moved out quite well.
:mrgreen:
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

drk
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Re: VWITX (Vanguard Intermediate Tax Exempt) Yields

Post by drk » Sun Aug 02, 2020 12:58 pm

hudson wrote:
Sun Aug 02, 2020 12:26 pm
Bottom line: Either Total Bond or VWITX are pretty good choices. Neither is as safe as treasuries or CDs, but both are OK. For me, I do hold VWITX/VWIUX in taxable and total bond in tax advantaged.
Oh, definitely. I don't have any concerns about high-quality munis. I held a healthy chunk of them recently, until I sold them for a house down-payment.

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