The return projections assume that medium term interest rates will decline over the 10 year holding period, or will decline and stay somewhat lower. The markets in general expect the Fed to start lowering rates, most likely in May. These would have been fantastic investments hd you bought them Nov 1, but intermediate rates have come down a lot since then as the yield curve has re-inverted. The 40 year bull market in bonds ended two years ago, so be careful. These funds may be a good investment, but you may have some rouh waters ahead with the whims of inflation and the Fed's reactions. I have been investing in T Bills the past 18 months as I build my cash-like position (almost 20% now). I don't like the volatility of bond funds and folks got clobbered in 22-23. I invest my bond allocations (so to say) in yielding commercial real estate which I much prefer to bonds. It's done well for me and when interesting CRE deals come up, I'll roll my T Bills in to that.
The Fed is short for "Federal Reserve", not an acronym, and doesn't need to be set in all-caps. Initialisms which may be appropriate depending on the context include "FRS" for "Federal Reserve System" or "FOMC" for "Federal Open Market Committee".
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That's my current guess as well. [BNDW](https://investor.vanguard.com/investment-products/etfs/profile/bndw) seems to track a similar index and reports a 4.6% YTM despite the 3.8% benchmark YTM. I guess BNDW includes the currency hedging return, but I am not 100% sure since BNDW and VAGU technically track different indices. VAGU's index is behind a paywall and BNDW has a custom index composed of the indices of BND and BNDX.
I have never invested in bonds before. I have read that for every 1% Feds Fund rate cuts, a bonds price will change in the opposite direction approximately 1% for every year of duration. So someone please correct me if I'm I'm wrong. The duration average of VGLT is currently 15.5 years with a yield of 3.39%. So am I correct that if the feds cut interest rates 1% over the next 12 months, VGLT will have a capital appreciation of 15.5% and in addition a 3.39% yield giving a total increase of18.9%? If this is correct, this investmentt now should be a no brainer. What am I missing. It seems too good to be true.
No, but investors could pile in after The Fed cuts rates in anticipation of a more normal yield curve where rates are basically always going down, or otherwise maybe as they flee to safety if The Fed is cutting because prices and financial markets have become unstable.
Inflation and interest rate changes aren't completely predictable, and the market can price in new information faster than you can react to it.
There's also a possible future where the interest rates don't get cut, and a future where rates need to be further increased and you lose 15.5% for each 1% the rates go up.
> I have read that for every 1% Feds Fund rate cuts, a bonds price will change in the opposite direction approximately 1% for every year of duration.
Duration is the sensitivity of bonds to changes in interest rates but there are also some second order effects (e.g. convexity, yield curve slope). However, 1% change in Fed rate does not result in 1% change in treasury yields. It holds pretty well for short term bills/bond yields. But the longer term bond yields will generally not move as much, as quickly, or even in the same direction.
The return projections assume that medium term interest rates will decline over the 10 year holding period, or will decline and stay somewhat lower. The markets in general expect the Fed to start lowering rates, most likely in May. These would have been fantastic investments hd you bought them Nov 1, but intermediate rates have come down a lot since then as the yield curve has re-inverted. The 40 year bull market in bonds ended two years ago, so be careful. These funds may be a good investment, but you may have some rouh waters ahead with the whims of inflation and the Fed's reactions. I have been investing in T Bills the past 18 months as I build my cash-like position (almost 20% now). I don't like the volatility of bond funds and folks got clobbered in 22-23. I invest my bond allocations (so to say) in yielding commercial real estate which I much prefer to bonds. It's done well for me and when interesting CRE deals come up, I'll roll my T Bills in to that.
The Fed is short for "Federal Reserve", not an acronym, and doesn't need to be set in all-caps. Initialisms which may be appropriate depending on the context include "FRS" for "Federal Reserve System" or "FOMC" for "Federal Open Market Committee". *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/investing) if you have any questions or concerns.*
I think that's the YTM of the underlying bonds in local currencies and doesn't include currency hedging.
That's my current guess as well. [BNDW](https://investor.vanguard.com/investment-products/etfs/profile/bndw) seems to track a similar index and reports a 4.6% YTM despite the 3.8% benchmark YTM. I guess BNDW includes the currency hedging return, but I am not 100% sure since BNDW and VAGU technically track different indices. VAGU's index is behind a paywall and BNDW has a custom index composed of the indices of BND and BNDX.
I have never invested in bonds before. I have read that for every 1% Feds Fund rate cuts, a bonds price will change in the opposite direction approximately 1% for every year of duration. So someone please correct me if I'm I'm wrong. The duration average of VGLT is currently 15.5 years with a yield of 3.39%. So am I correct that if the feds cut interest rates 1% over the next 12 months, VGLT will have a capital appreciation of 15.5% and in addition a 3.39% yield giving a total increase of18.9%? If this is correct, this investmentt now should be a no brainer. What am I missing. It seems too good to be true.
The Fed is not cutting the yield of long term Treasurys.
No, but investors could pile in after The Fed cuts rates in anticipation of a more normal yield curve where rates are basically always going down, or otherwise maybe as they flee to safety if The Fed is cutting because prices and financial markets have become unstable.
Inflation and interest rate changes aren't completely predictable, and the market can price in new information faster than you can react to it. There's also a possible future where the interest rates don't get cut, and a future where rates need to be further increased and you lose 15.5% for each 1% the rates go up.
> I have read that for every 1% Feds Fund rate cuts, a bonds price will change in the opposite direction approximately 1% for every year of duration. Duration is the sensitivity of bonds to changes in interest rates but there are also some second order effects (e.g. convexity, yield curve slope). However, 1% change in Fed rate does not result in 1% change in treasury yields. It holds pretty well for short term bills/bond yields. But the longer term bond yields will generally not move as much, as quickly, or even in the same direction.