Combining Bond Funds for my desired duration

[TrustTheMarket]

Hello. I am seeking a bond fund that holds treasuries with a fund duration of 10 years. That seems appropriate for us.

That said, Vanguard’s treasury funds have durations of either 5 years (Intermediate-Term) or 15 years (Long-Term.)

Would it be reasonable for us to split our assets 50/50 between these funds? We would then accomplish the 10-years duration goal, correct?

Thanks for your help.

And yes, I noticed there is an ETF called IEF (7-10 year treasury bonds) that could be a good alternative. However when I look at the historic premium/discount spreads for this ETF, I would rather not get involved (who knows what spreads might show up in the future. And if I buy/sell at the wrong time.) I don’t love the concept of essentially dealing with two prices; the underlying securities and the exchange traded price. I prefer mutual funds that trade once per day at NAV, especially when it comes to longer term bonds.

[galeno]

Yes. 50/50 is the solution. Your effective bond duration just needs to be in the ballpark.

[Would it be reasonable for us to split our assets 50/50 between these funds? We would then accomplish the 10-years duration goal, correct?]

[quisp65]

Works if you can stick with it. Most people love tinkering though.

I had long been thinking the same thing looking at a 7.5 duration going up to 10 years and was eyeing IEF (7.5 year treasury) or adusting with a combo of VGIT (int treasury) & VGLT (long treasury). 10 year duration is still called an intermediate duration but I guess that's just psychological word comfort. There's also Bondbloxx's treasury ETFs (XSVN & XTEN) but I wasn't comfortable with their low trade volume.

I think it's all fine but I'm too restless with my bond decisions and change directions too much and another 70s like inflation event wouldn't work with my behavior. I'm now with VGIT only. VGIT's 15% historic drop would recover in about 3 years so no big deal.

[Valuethinker]

Hello. I am seeking a bond fund that holds treasuries with a fund duration of 10 years. That seems appropriate for us.

That said, Vanguard’s treasury funds have durations of either 5 years (Intermediate-Term) or 15 years (Long-Term.)

Would it be reasonable for us to split our assets 50/50 between these funds? We would then accomplish the 10-years duration goal, correct?

Thanks for your help.

And yes, I noticed there is an ETF called IEF (7-10 year treasury bonds) that could be a good alternative. However when I look at the historic premium/discount spreads for this ETF, I would rather not get involved (who knows what spreads might show up in the future. And if I buy/sell at the wrong time.) I don’t love the concept of essentially dealing with two prices; the underlying securities and the exchange traded price. I prefer mutual funds that trade once per day at NAV, especially when it comes to longer term bonds.

Your "barbell" portfolio won't behave exactly like a fund with a 7.5 year duration.

That's because the average duration is just that, an average. Made up of the bonds in the fund at that time. Which changes over time.

Also duration is, in effect, an approximation. A rough rule-of-thumb. Getting technical, there's convexity (2nd derivative of price wrt yield) and further moments there. Basically the 2 fund solution would have a different timing of cash flows than the 1 fund solution. How material would the difference be between the FT + LT fund vs IT fund? I don't know, and so I can't say whether it is material. But, intuitively, there would be a difference.

If you want an Intermediate Term duration fund, then you should buy an IT duration fund. You *might* get to the same outcome with a 50/50 short/long, but you might not. Note that I would expect the duration to be less than 7 years (because of the way duration works).

I don't know what the discounts are that worry you, but they should be small - less than 1% of price?

[rkhusky]

Probably should come up with a plan for the glide path and rebalancing strategy for the 2-fund sub-portfolio before diving in.

Also, if you only have a small percentage in bonds, the difference between choosing one or two funds won’t be material. If your plan is to eventually have a high bond percentage, then starting now might be worthwhile, so you don’t have to change your plan in the future.

[TrustTheMarket]

Hello. I am seeking a bond fund that holds treasuries with a fund duration of 10 years. That seems appropriate for us.

That said, Vanguard’s treasury funds have durations of either 5 years (Intermediate-Term) or 15 years (Long-Term.)

Would it be reasonable for us to split our assets 50/50 between these funds? We would then accomplish the 10-years duration goal, correct?

Thanks for your help.

And yes, I noticed there is an ETF called IEF (7-10 year treasury bonds) that could be a good alternative. However when I look at the historic premium/discount spreads for this ETF, I would rather not get involved (who knows what spreads might show up in the future. And if I buy/sell at the wrong time.) I don’t love the concept of essentially dealing with two prices; the underlying securities and the exchange traded price. I prefer mutual funds that trade once per day at NAV, especially when it comes to longer term bonds.

Your "barbell" portfolio won't behave exactly like a fund with a 7.5 year duration.

That's because the average duration is just that, an average. Made up of the bonds in the fund at that time. Which changes over time.

Also duration is, in effect, an approximation. A rough rule-of-thumb. Getting technical, there's convexity (2nd derivative of price wrt yield) and further moments there. Basically the 2 fund solution would have a different timing of cash flows than the 1 fund solution. How material would the difference be between the FT + LT fund vs IT fund? I don't know, and so I can't say whether it is material. But, intuitively, there would be a difference.

If you want an Intermediate Term duration fund, then you should buy an IT duration fund. You *might* get to the same outcome with a 50/50 short/long, but you might not. Note that I would expect the duration to be less than 7 years (because of the way duration works).

I don't know what the discounts are that worry you, but they should be small - less than 1% of price?

I suppose the premiums and discounts I have seen in backtesting is concerning in some bond ETFs. The most appropriate ETF for my situation is IEF (7-10 year treasury index.) I think I’m going to make the switch to it. It doesn’t seem that Bogleheads are at all concerned with premiums/discounts when buying/selling.