Vanguard Ultra Short vs Short-Term Bond Index

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Re: Vanguard Ultra Short vs Short-Term Bond Index

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Electron wrote: Sat Oct 17, 2020 12:36 pm Vanguard also provides the Yield to Maturity for bond funds. In the case of VUBFX, it is currently 0.6% versus 0.68% for the SEC yield. Unfortunately, I don't believe the Yield to Maturity reflects expenses and historical data may not be available.
That reported YTM is as of 9/30, not that it makes much difference in the comparison to SEC yield as that was 0.70% as of 9/30. The net YTM, after accounting for the 0.20% ER, would be only 0.40%. That's 0.3% less than the SEC yield. I don't know what the explanation is for this divergence between YTM and SEC yield is. The SEC yield is supposed to be, essentially the (net) YTW, so not quite YTM, but YTW would have to be equal to or lower than YTM, not higher.
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Re: Vanguard Ultra Short vs Short-Term Bond Index

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jeffyscott wrote: Sat Oct 17, 2020 2:12 pm I don't know what the explanation is for this divergence between YTM and SEC yield is. The SEC yield is supposed to be, essentially the (net) YTW, so not quite YTM, but YTW would have to be equal to or lower than YTM, not higher.
If you get a yield drop during the 30 day period the price of all the holdings in the fund go up somewhat. Yet that price increase is not reflected in the price of the fund. So where did it go? David said that the roll yield is not much but here the fund is not selling all its assets only those that reached one year. The price of all the others increased. Shouldn't the price have gone up? Or was the unrealized price increase somehow included in the return?

I am way over my head here and I'm not sure I care. I don't pay much attention if any, to SEC yield. I do look at the various Morningstar chart presentations of growth, price and rolling returns instead. I'll leave the nuances to others.
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Re: Vanguard Ultra Short vs Short-Term Bond Index

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jeffyscott wrote: Sat Oct 17, 2020 2:12 pm I don't know what the explanation is for this divergence between YTM and SEC yield.
I've noticed that it can vary quite a bit depending on the fund.

Vanguard High Yield Corporate had a YTM of 4.6% and an SEC yield of 3.92% on 9-30-20.

As of 10-16-20, the SEC yield was 3.86%.
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Re: Vanguard Ultra Short vs Short-Term Bond Index

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Electron wrote: Sat Oct 17, 2020 6:16 pm
jeffyscott wrote: Sat Oct 17, 2020 2:12 pm I don't know what the explanation is for this divergence between YTM and SEC yield.
I've noticed that it can vary quite a bit depending on the fund.

Vanguard High Yield Corporate had a YTM of 4.6% and an SEC yield of 3.92% on 9-30-20.

As of 10-16-20, the SEC yield was 3.86%.
But there are reasons that the SEC yield may be lower than YTM. The SEC yield is after expenses and is intended to be like a YTW. Yield to worst can be lower than yield to maturity, due to callable bonds. I don't know if those two things completely explain all of the difference, but at least they might.

I don't know what the possible explanations can be when SEC yield is greater than the YTM.
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Re: Vanguard Ultra Short vs Short-Term Bond Index

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jeffyscott wrote: Sat Oct 17, 2020 9:41 pm I don't know what the possible explanations can be when SEC yield is greater than the YTM.
Here is a 2016 forum thread indicating that the Yield-to-Maturity figure reported by Vanguard is actually Yield-to-Worst.

viewtopic.php?t=198346

In regards to the SEC yield, Vanguard includes the following footnote on their website: "BASED ON HOLDINGS' YIELD TO MATURITY FOR PRIOR 30 DAYS"

That statement leaves a question about Yield-to-Worst. I did notice something interesting in the SEC 30 day Yield Calculation. See line 1(a) on page 66 (pdf) of SEC Form N-1A.

https://www.sec.gov/files/formn-1a.pdf

"The maturity of an obligation with a call provision(s) is the next call date on which the obligation reasonably may be expected to be called, or if none, the maturity date."

Note the words "reasonably may be expected to be called". That raises the question on whether call decisions are ever made on individual securities.

Lastly, line 1(b) in the SEC document appears to define a year as 360 days, 12 months, and 30 days per month. Dividing Yield-to-Maturity by 360 rather than 365 would appear to increase the daily income used in the SEC calculation. It's not clear whether the holdings define 360-day yields or 365-day yields.
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Re: Vanguard Ultra Short vs Short-Term Bond Index

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Electron wrote: Tue Oct 20, 2020 3:02 pm
jeffyscott wrote: Sat Oct 17, 2020 9:41 pm I don't know what the possible explanations can be when SEC yield is greater than the YTM.
Here is a 2016 forum thread indicating that the Yield-to-Maturity figure reported by Vanguard is actually Yield-to-Worst.

viewtopic.php?t=198346

In regards to the SEC yield, Vanguard includes the following footnote on their website: "BASED ON HOLDINGS' YIELD TO MATURITY FOR PRIOR 30 DAYS"

That statement leaves a question about Yield-to-Worst. I did notice something interesting in the SEC 30 day Yield Calculation. See line 1(a) on page 66 (pdf) of SEC Form N-1A.

https://www.sec.gov/files/formn-1a.pdf

"The maturity of an obligation with a call provision(s) is the next call date on which the obligation reasonably may be expected to be called, or if none, the maturity date."

Note the words "reasonably may be expected to be called". That raises the question on whether call decisions are ever made on individual securities.

Lastly, line 1(b) in the SEC document appears to define a year as 360 days, 12 months, and 30 days per month. Dividing Yield-to-Maturity by 360 rather than 365 would appear to increase the daily income used in the SEC calculation. It's not clear whether the holdings define 360-day yields or 365-day yields.
If 360 vs. 365 days is a factor it would be small one. A 1% over 360 days would become about 1.014% over 365 days.

Wouldn't whatever decisions are made about "reasonably may be expected to be called" be applicable in the same way to YTW and SEC yield?

Thanks, wasn't aware that Vanguard's YTM is actually YTW, so that means any difference between that at the SEC yield (other than the ER), in either direction, must be only due to differences in the calculation methodology of YTW vs. SEC yield. I do believe SEC is meant to be a sort of YTW, based on the part of the definition that you quoted and also the description here:
https://www.calamos.com/globalassets/me ... _final.pdf
30-day SEC yield... calculation uses the current yields to worst of all fixed income portfolio holdings...

That SEC yield gets confusing. Kevin did do some calculations to verify that the the SEC yield formula generates a number close to the YTM for individual bonds (treasuries so YTW not a factor), here: viewtopic.php?p=5421139#p5421139

I guess the odd results must somehow be related to how trades during the month are handled by the SEC calculation vs. the YTM (or YTW) calculation. The only other thing I am aware of is there may be some difference in how mortgage bonds are handled, mentioned in that linked discussion. But ultrashort does't have any MBS to speak of, at least based on current portfolio (0.05%).
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Re: Vanguard Ultra Short vs Short-Term Bond Index

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jeffyscott wrote: Tue Oct 20, 2020 4:34 pm Wouldn't whatever decisions are made about "reasonably may be expected to be called" be applicable in the same way to YTW and SEC yield?
That's certainly possible if the flexibility with bond calls is actually utilized. However, we've only seen the "reasonably may be expected to be called" text in the SEC 30 day formula.

My thought was that the SEC 30 day yield could be based on something between YTM and YTW with decisions made on individual bonds. It should be fairly easy to determine if bonds near their call dates could be refinanced at lower costs.

There might be a significant impact if rates make a large move up or down. If rates have gone up, there would likely be fewer bonds called. If rates have gone down, more bonds would be expected to be called.

I just looked at the Annual and Semiannual Reports for Vanguard Ultra-Short Term Bond fund and was surprised at the number of securities with call provisions. Securities are marked with the number "1" in the Schedule of Investments and a note is provided.

"The average or expected maturity is shorter than the final maturity shown because of the possibility of interim principal payments and prepayments or the possibility of the issue being called."

Bonds with these provisions are included in the list of Asset-Backed/Commercial Mortgage-Backed Securities and the list of Corporate Bonds.

I think you're correct about portfolio changes impacting the calculations. Vanguard bond funds often include derivatives which would be another complication. The forum thread you referenced looks excellent and I intend to review it in detail.
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