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Anyone buying bond funds?
Old 06-15-2009, 01:06 PM   #1
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Anyone buying bond funds?

I have a couple of CDs (non-IRA) maturing over the next several months and I'm considering putting the funds into a bond fund. I've been looking into Vanguard's Intermediate Term Tax Exempt fund (VWITX).

My main concern right now is the potential errosion of principle should interest rates start to rise and the potential for states like CA. defaulting on some of their bonds (VWITX has quite a few CA bonds).

Anyone out there facing a similar situation? Any thoughts?
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Old 06-15-2009, 03:24 PM   #2
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I also own VWITX. I am not worried.

1) I do not believe that the Federal government will allow states to default (Bailing out CA would cost less than bailing out AIG, IIRC).

2) The average duration for VWITX is 6 years, so any loss of principal due to rising interest rates would be offset by increasing dividends and within 6 years you should break even. Since my time frame is much longer than 6 years, I am willing to take the risk. But I also have money in VWSTX (short term munis) even though the sweet spot on the yield curve seems to favor VWITX right now. Short term bonds will be less impacted by rising interest rates and their dividends will increase more rapidly hence giving you better principal protection.

3) Remember, trying to predict interest rates is as futile as trying to predict the stock market (though I am often guilty of both).
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Old 06-15-2009, 05:54 PM   #3
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Still putting into a short term bond fund. Not really worried about it.
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Old 06-16-2009, 07:57 AM   #4
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Still DCAing into VWAHX and VNYTX. Not tapping dividends for income, still accumulating. Still OK with additional risk with VWAHX with my own time horizon. VWAHX took a -10.45% hit in 2008, but is recovering nicely.

Looking at a partial exchange to VWITX once I reach a target amount in VWAHX. Maybe...
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Old 06-16-2009, 05:57 PM   #5
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1) I do not believe that the Federal government will allow states to default (Bailing out CA would cost less than bailing out AIG, IIRC).
I am not so sanguine about the prospect. I can see 98 senators and 382 congressmen saying to California -- "you want taxpayers in my state to pay your state's bills, because you won't raise your own taxes? Are you high?" I would certainly raise holy hell with my Representative and Senators if they supported such a thing.
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Old 06-16-2009, 05:59 PM   #6
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I am not so sanguine about the prospect. I can see 98 senators and 382 congressmen saying to California -- "you want taxpayers in my state to pay your state's bills, because you won't raise your own taxes? Are you high?" I would certainly raise holy hell with my Representative and Senators if they supported such a thing.

They already raised taxes
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Old 06-16-2009, 06:01 PM   #7
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They already raised taxes
Apparently not enough.
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Old 06-16-2009, 06:05 PM   #8
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Apparently not enough.
Dont need to raise taxes anymore. Remove the entitlement social programs.
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Old 06-16-2009, 06:07 PM   #9
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Dont need to raise taxes anymore. Remove the entitlement social programs.
We have to introduce our respective Governors. Wanna do lunch?
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Old 06-16-2009, 06:09 PM   #10
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Dont need to raise taxes anymore. Remove the entitlement social programs.
That's a decision the people in California have to make, and live with the consequences. Either way, we have our own budget problems in my state to deal with and most folks are not likely to want to take on California's problems as well.
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Old 06-16-2009, 06:14 PM   #11
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That's a decision the people in California have to make, and live with the consequences. Either way, we have our own budget problems in my state to deal with and most folks are not likely to want to take on California's problems as well.
Slope got slippery didn't it. Aig, auto companies,housing,auto makers. Everyone sticks their hand out.
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Old 06-16-2009, 06:18 PM   #12
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Slope got slippery didn't it. Aig, auto companies,housing,auto makers. Everyone sticks their hand out.
States are in a different league because they are sovereigns with the power to solve their budget problems by increasing taxes. Private companies do not have that option. Note that this is not a blanket endorsement of the private company bailouts either, just an observation about the qualitative differences in the situations.
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Old 06-16-2009, 06:19 PM   #13
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I agree about California and their need to reduce spending drastically.

Check out TRP Emerging Markets Bond Fund PREMX. It's a play on a falling dollar.
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Old 06-16-2009, 06:23 PM   #14
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States are in a different league because they are sovereigns with the power to solve their budget problems by increasing taxes. Private companies do not have that option. Note that this is not a blanket endorsement of the private company bailouts either, just an observation about the qualitative differences in the situations.
And, I would add, this difference creates a different political reality (as I noted in my first post) which makes me less than confident that the feds will bail out California.
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Old 06-16-2009, 06:25 PM   #15
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And, I would add, this difference creates a different political reality (as I noted in my first post) which makes me less than confident that the feds will bail out California.
I hope not. This state needs to learn some fiscal discipline. Hopefully when universal health care comes. We can dump MediCal. Pass the buck onto the rest of the nation.
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Old 06-16-2009, 06:29 PM   #16
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Though I prefer no bailouts to corporations, I can see the Fed's argument that these are "one-time" deals. The problem with CA is a recurrent one.

But then, SS and Medicare are also problems demanding long-term solutions. Past administrations have attempted to address it, but did Congress (and the American people) have the courage to do anything about it?
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Old 06-16-2009, 06:31 PM   #17
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Though I prefer no bailouts to corporations, I can see the Fed's argument that these are "one-time" deals. The problem with CA is a recurrent one.

But then, SS and Medicare are also problems demanding long-term solutions. Past administrations have attempted to address it, but did Congress (and the American people) have the courage to do anything about it?

Yes, Its like watching a circus with the Terminator and the Democratic legislation in making a budget. It gets old.
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Old 06-16-2009, 07:36 PM   #18
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I have a mixture of SHV, TIP, HYG, and a no-name 401k fund that mimics the total bond market. Not adding or subtracting at this time.
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Old 06-16-2009, 11:38 PM   #19
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