I am looking at moving a large amount of cash into some combination of conservative bonds (balancing my AA). Based on my tax bracket it would be slighty advantageous to be in a tax exempt fund like VTEB in terms of after tax yield of a total bond fund like BND vs an exempt one like VTEB.
My question is, all bonds are signifcantly down in the past 12 months. Looking at BND it is down almost 17% and VTEB is down almost 12%. So since I want to move the cash and then keep it parked in those bonds long term. One thing I am trying to weigh is 'Extent of fund growth" not the coupon yield. BND feels like over the next 2,3,4+ years it will recover value more than VTEB given how far it has fallen. If that is likely than the overall yield of BND for me over VTEB will be higher due to the appreciation fo the BND share price over time. I am hypothesizing, but any input would be appreciated.
Move into VTEB or BND
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- Location: Tampa FL
Re: Move into VTEB or BND
No, there is no sort of return to the mean going on here. The bond funds have fallen because bond prices fall on the market when interest rates go up. After that the increased interest rates result in an increase over time in the fund value pending what changes continue to happen to interest rates. Those funds would recover fastest if interest rates go down again, but that is an unpredictable thing. The math of the whole thing is driven by duration: https://en.wikipedia.org/wiki/Bond_duration There can be some complications in assessing bond duration of munis, but on the surface the duration of BND is 6.7 years and VTEB 5.7 years.
I have no idea what advantage there is between one fund or the other.
I have no idea what advantage there is between one fund or the other.