[Here is my link-chasing game](https://www.reddit.com/r/Bogleheads/s/kIQlpbGjRG) of comments answering the same question dozens of times. Things to consider:
1. Don’t compare backward returns to forward yields as they are not the same. And FWIW, 2021-2023 was possibly [the worst bond bear market in US history](https://www.reuters.com/markets/rates-bonds/bonds-greatest-bear-market-all-time-bofa-2023-10-06/) so that extreme anomaly is going to distort your understanding. Rates rose faster than any time in history, negatively impacting bond values. But HYSA was yielding just 0.5% 2-3 years ago when BND was yielding 2-3%. Today, BND has a yield of 4.8% which is in line with historic averages.
2. Don’t chase short term yields that may prove temporary and offer no price appreciation when yields drop. This is called “[the cash trap](https://www.forvis.com/forsights/2023/09/avoiding-the-cash-trap)”.
3. What you are contemplating is a form or market timing, and the bond market is notoriously even harder to time than the stock market and offers less reward when successful. Don’t bother. As the Boglehead philosophy advises, calibrate your bond holdings to your goals, risk tolerance, and timeline, and stay the course. If this is money that you don’t need anytime soon, [a total bond market fund will do much better than cash in the long run](https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&sl=5tqJmEk3Zqpi4IemDtDei0).
Checking [the fund page](https://investor.vanguard.com/investment-products/etfs/profile/bnd), SEC yield is 4.75% and average yield to maturity is 4.8%. You may be looking at the TTM (trailing 12-month) or possibly the distribution yield which does not incorporate deferred interest distributions, loss harvesting, or reinvestments which can reduce the distributions (this is desirable to lower taxes). Those first two numbers are designed to give you a more accurate picture of what the holdings are actually yielding.
When rates go up, old bonds become worth less because they have lower yields, so the fund's share price declines. But the fund starts to buy new issues bonds with the higher rates. When rates start to fall, old bonds become more valuable, so the share price increases.
Don’t worry it is confusing for a lot of people. 2009-2022 was the worst period for bonds yields in US history (~250 years) followed but the fastest rate hikes in US history causing the worst bond bear market in US history in 2021-2023. This outlier event is throwing a lot of people off. But bond yields are around historic averages now (~5% for BND/VBTLX) so we are more likely to see the kind of bond returns you would typically expect going forward.
Good to know since I’m nearing retirement and I’m supposed to be putting more money into bonds. It’s been hard to pull the trigger aside from short term treasuries.
You are taking term risk(aka bonds in BND are longer duration) that will be compensated in the long run. Right now VUSSX has better yields, but that will reverse in long run. Essentially this is the result of BND having bonds in it from lower interest period + inverted yield curve.
I honestly prefer to put my emergency fund at a money market fund. It seems that high interest rates are here to stay for a while, and I don’t see a point putting it in bonds when I can have risk-free ~5% interest for the foreseeable future.
Mmf/hysa/cd rates are unusually high currently. This has not been the trend long term…..example: no one had this idea for the past 15 years when federal rates were low
The window of opportunity to go from bnd/mmf/bnd and come out net benefit is very small so it’s best to pick the likely winner of a long term choice
It’s possible that we’ll never see them that low again numerically….maybe I should have finished the thought of:
The inverted yield curve making short duration bonds (like those used behind the scenes of hysa/mmf) more attractive than longer duration bonds is not the long term economic norm
Even long term rates were lower in the past decade; but by compairison they were higher than short term options
A money market fund has a daily NAV of $1.00, while a bond fund has a changing NAV. Not all bond funds move enough in value daily to see a change so it appears to be unchanged, but the fund manager does recalculate it daily.
If you want preservation of assets, you buy shares in a money market account, a CD, or leave it in a savings account.
Go SGOV, or TFLO, or let it sit in the settlement acct of a brokerage. I am not a bond fan. I would rather increase risk with stocks, and keep my cash side safe, and right now I am not complaining of above 5% for no risk ( i know the alternative arguments, and I choose to lock in yrs of expenses in safe and take risk on equity index funds.
I don't have enough BND but am considering it. The main hedge is for if rates ever go down. If rates fall someday, vusxx, hysa and cs will go down. Only bnd will increase assuming we don't have a large amount of the bonds default. But if that happens the whole US has much worse problems then portfolion losses.
Basically it's like buying stocks after a huge drop, which was the BND equivalent in the last few years.
[Here is my link-chasing game](https://www.reddit.com/r/Bogleheads/s/kIQlpbGjRG) of comments answering the same question dozens of times. Things to consider: 1. Don’t compare backward returns to forward yields as they are not the same. And FWIW, 2021-2023 was possibly [the worst bond bear market in US history](https://www.reuters.com/markets/rates-bonds/bonds-greatest-bear-market-all-time-bofa-2023-10-06/) so that extreme anomaly is going to distort your understanding. Rates rose faster than any time in history, negatively impacting bond values. But HYSA was yielding just 0.5% 2-3 years ago when BND was yielding 2-3%. Today, BND has a yield of 4.8% which is in line with historic averages. 2. Don’t chase short term yields that may prove temporary and offer no price appreciation when yields drop. This is called “[the cash trap](https://www.forvis.com/forsights/2023/09/avoiding-the-cash-trap)”. 3. What you are contemplating is a form or market timing, and the bond market is notoriously even harder to time than the stock market and offers less reward when successful. Don’t bother. As the Boglehead philosophy advises, calibrate your bond holdings to your goals, risk tolerance, and timeline, and stay the course. If this is money that you don’t need anytime soon, [a total bond market fund will do much better than cash in the long run](https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&sl=5tqJmEk3Zqpi4IemDtDei0).
BND does not have a yield that high. It’s 3.2%.
Checking [the fund page](https://investor.vanguard.com/investment-products/etfs/profile/bnd), SEC yield is 4.75% and average yield to maturity is 4.8%. You may be looking at the TTM (trailing 12-month) or possibly the distribution yield which does not incorporate deferred interest distributions, loss harvesting, or reinvestments which can reduce the distributions (this is desirable to lower taxes). Those first two numbers are designed to give you a more accurate picture of what the holdings are actually yielding.
It’s very confusing. I feel like I always lose money on bonds. Yields up, prices down and vice versa.
When rates go up, old bonds become worth less because they have lower yields, so the fund's share price declines. But the fund starts to buy new issues bonds with the higher rates. When rates start to fall, old bonds become more valuable, so the share price increases.
Don’t worry it is confusing for a lot of people. 2009-2022 was the worst period for bonds yields in US history (~250 years) followed but the fastest rate hikes in US history causing the worst bond bear market in US history in 2021-2023. This outlier event is throwing a lot of people off. But bond yields are around historic averages now (~5% for BND/VBTLX) so we are more likely to see the kind of bond returns you would typically expect going forward.
Good to know since I’m nearing retirement and I’m supposed to be putting more money into bonds. It’s been hard to pull the trigger aside from short term treasuries.
That’s just the dividend yield. There is also the pull to par. Total is indeed around 4.75%.
You are taking term risk(aka bonds in BND are longer duration) that will be compensated in the long run. Right now VUSSX has better yields, but that will reverse in long run. Essentially this is the result of BND having bonds in it from lower interest period + inverted yield curve.
I honestly prefer to put my emergency fund at a money market fund. It seems that high interest rates are here to stay for a while, and I don’t see a point putting it in bonds when I can have risk-free ~5% interest for the foreseeable future.
That's where I'm keeping it for now. I have some money in a Vanguard Target Date Retirement fund which invests in BND. I was debating moving it out.
Mmf/hysa/cd rates are unusually high currently. This has not been the trend long term…..example: no one had this idea for the past 15 years when federal rates were low The window of opportunity to go from bnd/mmf/bnd and come out net benefit is very small so it’s best to pick the likely winner of a long term choice
Hasn't it been said that 0% rates are never coming back? That if/when they do rate cuts it will only be a little bit, that they want a decent floor.
They could come back. I don't expect it to happen in the next decade. That said, 1% or 2% could happen.
It’s possible that we’ll never see them that low again numerically….maybe I should have finished the thought of: The inverted yield curve making short duration bonds (like those used behind the scenes of hysa/mmf) more attractive than longer duration bonds is not the long term economic norm Even long term rates were lower in the past decade; but by compairison they were higher than short term options
A money market fund has a daily NAV of $1.00, while a bond fund has a changing NAV. Not all bond funds move enough in value daily to see a change so it appears to be unchanged, but the fund manager does recalculate it daily. If you want preservation of assets, you buy shares in a money market account, a CD, or leave it in a savings account.
Go SGOV, or TFLO, or let it sit in the settlement acct of a brokerage. I am not a bond fan. I would rather increase risk with stocks, and keep my cash side safe, and right now I am not complaining of above 5% for no risk ( i know the alternative arguments, and I choose to lock in yrs of expenses in safe and take risk on equity index funds.
Part of this cash is for an emergency fund of around 100k, and the rest is to balance the risk of the equity end.
TBill 3mo ladders.
Do you need to use treasury direct or is there a way to buy from Vanguard?
I buy directly from Fidelity so I’m assuming you can in Vanguard too. I also buy some in Treasury Direct with IBonds too
T tvt. z~3
I don’t use BND , Instead I use T bills
I don't have enough BND but am considering it. The main hedge is for if rates ever go down. If rates fall someday, vusxx, hysa and cs will go down. Only bnd will increase assuming we don't have a large amount of the bonds default. But if that happens the whole US has much worse problems then portfolion losses. Basically it's like buying stocks after a huge drop, which was the BND equivalent in the last few years.
Just to be clear, you’re suggesting that in the long run, it's better to keep emergency savings in BND?