Ready
Thinks s/he gets paid by the post
May I ask for some guidance from the bond gurus on the forum please. I'm evaluating whether to move a portion of my municipal bond funds from intermediate term to long term. The Vanguard funds I am comparing are VWIUX and VWLUX.
Here are the basics:
Intermediate has an SEC yield of 2.13%, duration of 5.2 years, maturity 5.4 years.
Long term has an SEC yield of 3.19%, duration of 7.2 years, maturity 7.1 years.
So an extra 2 years of duration yields an additional 106 basis points, which equates to 53 basis points per additional year of duration. On the surface, it would appear that the slightly longer maturity is more than justified by the extra basis points. But it appears to good to be true. I feel like I'm missing something here. I found one article on the subject suggesting that the 7.2 year duration on the long term fund may not be accurate because a larger portion of the holdings may be callable before the 7.2 years take place, but I'm still not sure how that impacts the fund.
Vanguard shows a risk potential of 2 for intermediate term, and 3 for long term. Am I missing something, or should I consider moving a portion of my holdings to long term to get the extra 106 basis points?
Here are the basics:
Intermediate has an SEC yield of 2.13%, duration of 5.2 years, maturity 5.4 years.
Long term has an SEC yield of 3.19%, duration of 7.2 years, maturity 7.1 years.
So an extra 2 years of duration yields an additional 106 basis points, which equates to 53 basis points per additional year of duration. On the surface, it would appear that the slightly longer maturity is more than justified by the extra basis points. But it appears to good to be true. I feel like I'm missing something here. I found one article on the subject suggesting that the 7.2 year duration on the long term fund may not be accurate because a larger portion of the holdings may be callable before the 7.2 years take place, but I'm still not sure how that impacts the fund.
Vanguard shows a risk potential of 2 for intermediate term, and 3 for long term. Am I missing something, or should I consider moving a portion of my holdings to long term to get the extra 106 basis points?