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Question about bonds

 
Anonymous Coward
User ID: 27255250
United States
11/07/2012 07:09 PM
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Question about bonds
I have just recently bought shares in the Vanguard GNMA bond fund (VFIJX). People say bonds are inversely related to interest rates. I watch the 10-year T-Note rates and then see how my fund's NAV changes. It doesn't seem to follow the rates very closely. One day the rate barely went up and my fund's NAV increased greatly. Today the rates went down significantly and the NAV of my bond fund did not change. Whats the deal?
Anonymous Coward
User ID: 27223916
United States
11/07/2012 07:59 PM
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Re: Question about bonds
I think James Bonds was a spy or something..
Anonymous Coward (OP)
User ID: 27255250
United States
11/07/2012 09:18 PM
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Re: Question about bonds
no I think that was Barry Bonds
Anonymous Coward
User ID: 25140151
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11/08/2012 12:05 AM
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Re: Question about bonds
I have just recently bought shares in the Vanguard GNMA bond fund (VFIJX). People say bonds are inversely related to interest rates. I watch the 10-year T-Note rates and then see how my fund's NAV changes. It doesn't seem to follow the rates very closely. One day the rate barely went up and my fund's NAV increased greatly. Today the rates went down significantly and the NAV of my bond fund did not change. Whats the deal?
 Quoting: Anonymous Coward 27255250


It looks like a no-load Vanguard fund, with low (good) expense ratios...that is what's known as a "pass through" (based on mortgage payments). GNMA is one of the mortgage institutions that play a role (with US Govt help), in the residential mortgage market.

If you look at an intermediate performace chart of US Govt. Bond Securities, it correlates almost exactly, over the past ten years.

So its history is that when Intermediate US TBonds are going up in price, this one does too, and visa versa.

So the correlation is very close, but its yield is a little higher, which makes sense, since it's not " a US T Bond fund".

In my opinion there are mulitple risks with it, especially the future Purchasing Power risk: if the dollar really gets canned, then so will the PP of the fund, even if the "nominal" ROR is still above water.

Wish you all the best.

Praise God

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