Treasury bond funds

[inquisitive]

What determines the performance of treasury bond funds? As US debt is considered a safe investment, the only other factors that seem to play in are interest rates and supply/demand.

To take a specific example (although all the comparable funds I looked at had similar performance), FLBAX returned 20% this year, and the index on which it is based had a 7%+ return over the past 10 years. Am I right in thinking that the return over the next 10 yrs will not be nearly as good because interest rates are going to rise? What sort of return can I expect?

Why was the return so good this year, is it because of high demand because interest rates are currently low?

If I am limited to bond funds in a retirement account, what types of bond funds should I consider to diversify from equities, that would have equity-like returns and risk? Have also looked at corporate (lower grade) and international sovereign debt (am an aggressive investor).

 

[Independent]

If you're interested in FBLAX specifically, it's a balanced fund that is 48% equities. Franklin Balanced A Report (FBLAX) | Asset Allocation Summary
I don't know what they are using for comparisons.

This is a list of Vanguard's bond funds https://investor.vanguard.com/mutual-funds/vanguard-mutual-funds-list?assetclass=bond

 

[inquisitive]

If you're interested in FBLAX specifically, it's a balanced fund that is 48% equities. Franklin Balanced A Report (FBLAX) | Asset Allocation Summary
I don't know what they are using for comparisons.

This is a list of Vanguard's bond funds https://investor.vanguard.com/mutual-funds/vanguard-mutual-funds-list?assetclass=bond

I think you transposed a letter, I mentioned FLBAX, which is 99% treasuries, but am not interested in it specifically, am wondering how ppl estimate the future return of bond funds in general. Specifically:

treasuries
corporate bonds (investment vs. less than investment grade)
international bonds (sovereign and corporate)

 

[gcgang]

http://www.investopedia.com/university/bonds/bonds3.asp

Above gives a decent explanation of how bonds prices, and returns, are determined.

Before you invest in bonds you should be able to explain why EDV returned over 40% this year while it's yield was under 4%, and what would happen to a bond investment with different changes in interest rates.

Of course if you invest in other than Treasuries there are numerous factors other than just interest rate changes that determine your return.


Sent from my iPad using Early Retirement Forum

 

[2B]

Unless you are dealing in multiple millions of dollars, you can beat the return using FDIC insured CDs. Your money is still guaranteed by the Feds. You have greater liquidity with Federal debt but that's not why a typical individual investor would buy a bond or bond fund.

 

[Gearhead Jim]

I'm thinking about having some money in an intermediate-term Treasury bond fund, as a hedge against some major disaster like a huge terrorist attack, major California earthquake, etc. In that situation, Treasuries would likely become the safe harbor investment and interest rates should drop.


Of course, the fund might not do very well in more normal circumstances...

 

[Independent]

I think you transposed a letter, I mentioned FLBAX, which is 99% treasuries, but am not interested in it specifically, am wondering how ppl estimate the future return of bond funds in general. Specifically:

treasuries
corporate bonds (investment vs. less than investment grade)
international bonds (sovereign and corporate)

Oops.

In that case, follow gcgang's link.

 

[audreyh1]

I'm thinking about having some money in an intermediate-term Treasury bond fund, as a hedge against some major disaster like a huge terrorist attack, major California earthquake, etc. In that situation, Treasuries would likely become the safe harbor investment and interest rates should drop.


Of course, the fund might not do very well in more normal circumstances...

I do hold a chunk of my fixed income in govt-backed bonds such as munis and GNMAs. I also have a very high quality short-term bond fund that has a lot of treasuries in it, and a % allocated to cash. I hold these precisely for those times when we have a "flight to quality" situation which hurts stocks and sometimes even corporate and lower quality bonds, but treasuries and govt-backed bonds tend to appreciate. If you have an opportunity to rebalance under those conditions, then having some very high credit quality bonds and cash is nice.

My core bond funds are more aggressive in terms of credit quality and duration, so the above higher quality and shorter term bond types help balance them out. It's just part of a good general diversification strategy, IMO.

 

[REWahoo]

I do hold a chunk of my fixed income in goat-backed bonds...

I'm always learning something new on this forum...

 

[BOBOT]

I'm always learning something new on this forum...

Yeah, those Albanian munis look pretty sweet.

 

[audreyh1]

I'm always learning something new on this forum...

I already corrected that once!!! (Oh, I see I missed the first one) Courtesy of my friendly spelling auto-corrector who apparently thinks govt-backed bonds should be goat-backed, LOL!

Here is something just for you REWahoo, to compliment your holiday avatar:
from the Sociedad Mexicana de Entomología Facebook Page https://www.facebook.com/SMEntomologia?ref=br_tf