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When Treasury yields rose between March and May VBTLX dropped like a rock from NAV of 10.55 to 10.40. Now that Treasury yields are going back down and are at March levels the NAV has not gone up at all. The 10YT in mid March was 2.89, exactly what it is today and the NAV was 10.49 in March but today it is 10.40.
Just trying to understand why the NAV has lost value and is going down when interest rates are dropping which seems inverse to what should actually happen. Could this be due to redemptions and a flight out of the bond fund?
this has been explained over and over . you still have a poor understanding so i suggest you google a bunch of how bonds work articles . maybe they can explain it in a way you understand .
you are not grasping the concept that nav can stay at a loss but total return picks up because your interest rate payments grow over time offsetting the nav loss . vbtlx has a duration of 6.08 years . it's reference should be the 7 year bond . 10 year is to far out to be accurate . the less the years the more the bond trades on short term fed moves , the longer out you go the more greed ,fear and perception move the rates . the 7 year is more short term rate dependent .
on 3/29 your nav was 10.52 and it paid .0239 cents in interest while the 7 year bond was at 2.68%
0n 4/30 nav was 10.41 and paid .0235 7 year was 2.91%
on 5/30 nav was 10.45 and paid .0243 7 year was at 2.78%
they are tracking fine
Last edited by mathjak107; 06-19-2018 at 12:00 PM..
ok, looks like if I track it against the 7 year it's closer.. the gap between the 7 and 10 year has closed since Jan.. 0.11% spread vs 0.02% now, yield curve flattening I guess
As interest rates go up the value of a fixed income investments goes down and vice versa.
If you buy a new 10 year bond at par and hold it for 10 years you will get your original investment back no matter how the interest rates changed over the 10 years. You will also get the annual income you were promised when you bought the bond.
The problem comes if you have to sell before the bond matures. You can then get more or less than you paid for the bond depending on current interest rates.
If you are investing in a mutual fund of bonds the fund maybe forced to sell bonds before maturity and suffer a loss due to investors selling their shares of the fund. Thus you will have a loss in the value of your mutual fund shares.
Thus best to buy individual bonds and hold to maturity. But then you have a credit risk that your bond could default.
it is the same for individual bonds . bond funds have a duration value that is similar to a maturity date . in both case's you will loose money selling prematurely or get pretty close to the interest rate you bought at even with the bond fund .
i think the op was just using the wrong benchmark . the 10 year is not a good index to track a fund with a duration of 6.08 years . once you use the 7 year bond you can see they move in lockstep
If Distribution Yield < SEC Yield (which is the case in VBTLX) it means that majority of the bonds in the mix are currently below par and selling for a discount (hence the reduction in NAV).
This would imply that assuming the fund manager keeps most of the bonds to maturity the par value should be realized as the bonds mature with time and the NAV should increase.
Since different bonds in the fund have different maturity dates is there a way to get info regarding the number and amount of bonds maturing by date ranges?
For example:
35% 2020 Q3 value=$45 million
10% 2021 Q1 value=$35 million
etc.
Not sure if one can get such fine grained analysis about the bond fund.
you keep talking about the nav increasing . no it never has to increase . what increases is the payout .
try to follow this so hopefully you get it .
you buy in to a fund at 10 dollars a share , it has a 5% yield and it has a duration of 5 years .
so rates go up 1% to 6% on bonds . to compensate new buyers the nav drops to 9.50 which is a 5% fall ..
but as the lower yielding bonds are replaced your interest payment jumps to 6% . so instead of 5% for 5 years you got payments of 6% . nav stays at 9.50 but over those 5 years you collected an extra 1% interest . the extra 5% in interest over the 5 years offsets the nav drop of 5% .
so nav does don't go up . your interest payment went up .
at the end off the 5 years your nav is still 9.50 but you got an extra 5% in interest . total return is 5% , just as if you bought an individual bond paying 5%
Since different bonds in the fund have different maturity dates is there a way to get info regarding the number and amount of bonds maturing by date ranges?
Sure, this is all in the fund reports.
I took a quick look at the Dec '17 report for VBTLX. The complete list of holdings fills about 121 pages.
I still think it's good to look at the fund reports to see what sort of things the managers are buying. I wouldn't buy a fund before looking at the latest annual report or two.
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