VG High Yield

[treypar]

I have about 10% of my bond assets in this fund. I am thinking about moving this money to the ST Corp fund due to the shrinking spreads between HY and Treasuries. Any comments would be appreciated.

 

[cute fuzzy bunny]

The fund sure isnt paying a very good premium for junk.

On the other hand, its pretty good junk. Not a huge risk of defaults.

If rates drop (and a lot of 'predictors' say they will) then the short term corp funds dividends will fall pretty quickly and you wont get much of an oomph in the bond prices. Might be a slower dividend drop (if any) and a bit better gain in the prices of the high yield fund.

On the other hand, the bond markets been acting pretty oddly the last year or two.

Anyone got a spare hand? I'm out.

I dont know if I'd buy into it right now but I dont know if I'd go out of my way to sell it either.

 

[Texas Proud]

I will be the third hand.... I am thinking of moving my GNMA to the HY fund... GNMA is pretty low and I will take the extra yield for the small chance of default... as mentioned... it is not that junky..

 

[cute fuzzy bunny]

I dont disagree, but theres enough plausibility for a little drop in NAV to make me seriously consider cd's in the 6+% range vs the HY fund. A sub 1% delta in the dividend just wouldnt wow me. But then, the 6.25% cd's dried up as of 2/1.

I usually like to get 5% or more from a HY fund vs a long cd or short bond; in vanguards case due to decent credit quality (and they got even cleaner about 12-18 months ago) and low defaults, I'm wiling to shave that down to 2.5-3.5%. Didnt look too bad a couple of years ago when CD's were paying 3%...but now its not looking like such a great deal.

 

[brewer12345]

The junk market is wildly overpriced right now. I would not buy or keep a junk fund right now.

 

[FinanceDude]

The junk market is wildly overpriced right now. I would not buy or keep a junk fund right now.

Listen to the man.....he knows............

 

[MooreBonds]

I dont disagree, but theres enough plausibility for a little drop in NAV to make me seriously consider cd's in the 6+% range vs the HY fund. A sub 1% delta in the dividend just wouldnt wow me. But then, the 6.25% cd's dried up as of 2/1.

Well, you can still get 6.00% APY on 7-year CDs....

 

[d]

But then, the 6.25% cd's dried up as of 2/1.

au contraire, mon ami

Ridgewood Savings Bank is offering a special 6.25% APY 10-year IRA certificate of deposit. ... the promotion should be available until April 17, 2007. The early withdrawal penalty equals one year of interest. About opening this IRA CD by mail, the service rep said that it would depend on the individual branches.

http://bankdeals.blogspot.com/ ... but an awful lot can happen in 10 years; i, for one, won't be fishin' in them waters.

 

[treypar]

I have to agree the spreads are very thin for junk so I am going to get out. Thanks for the comments.

 

[Gone4Good]

The junk market is wildly overpriced right now. I would not buy or keep a junk fund right now.

Ditto.

 

[AlmostDone]

I own Fidelity Capital & Income (FAGIX). It's a M* category of High Yield Bond Fund. Would you advise getting out of it? It's in my 403B. I am planning to move it to VG where everything else is now. I could sell it and reinvest in the VG Bond Index.

 

[clifp]

The junk market is wildly overpriced right now. I would not buy or keep a junk fund right now.

I was all set to agree with everybody, but than I went back and looked at the data.
I sold my VEHWX last year because I figured junk bonds were going to get killed and I was tired of the volitality. I kept my VG GNMA because I needed the income and the VG GNMA fund has been very stable.
However, when I went back and looked at VWEHX performance I was impressed by the stability. In the past 5 years the fund prices has only varied by 17% and this year share price volatility is more typical +/- 4%. Total 1 year returns of 8.72% and 5 year returns of 7.52% are quite respectively even if they trail other junk bond funds.

Now VG GNMA has roughly 1/2 the volatility but its returns of 4.62 1 years and 4.63 5 years are quite a bit lower.

 

[cute fuzzy bunny]

A lot of people lump vanguards fund with the general junk funds. Its always been a lot more conservative, yet not so great yielding. They went nutty about 18 months ago dumping the lower end of the risk spectrum and beefing up on the higher credit, lower dividend stuff expecting something "bad" to happen that never did.

Its not a free lunch and its kind of a crappy lunch to boot, but if I held it in small amounts right now, dumping it wouldnt be my biggest concern or first priority. If I had a big holding I'd for sh*t sure find something better for it to do, and I strongly doubt I'd buy any more of it right now or anytime soon.

The GNMA fund has usually given you a little more yield than long cd's, without a whole lot of risk. Not terribly attractive the last couple of years though. I've kept looking at it and wanting it the last 3 years and never pulled the trigger.

On the other hand, when its about bonds...brewers the man.

 

[ERD50]

I hold a fair amount, and also have trouble deciding if I should dump it or not. As mentioned, not that volatile, not that 'junky' (one default recently is the only one I'm aware of in the past 3 years). And as also mentioned, not too attractive with CDs ~ 6%.

Same story with a smaller amount of GNMA.

Just can't decide to sell, not sure the alternatives are better. Not sure I'd want to lock in longer CDs, and if rates are down when it's time to renew....

in analysis paralysis - ERD50