I've also been thinking short term is probably best.
Not sure if anyone answered the OP's question but it sure instigated plenty follow up questions. When it comes to bonds, the more discussion the better as for my thinking. I'm sure that will help all that are interested.
Steve
I stated my opinion that I think it is a bad time to buy government bonds or bond funds. As Ha Ha said, is it the worst time ever? that can't be known.
So lets inject a bit of data into the discussion. Right now the Vanguard Total Bond index SEC yield is 4.17%. Is that high or low? The 5 year total returns on the fund are 4.08% and the 10 year and lifetime (22+ year) returns are 5.45 and 6.81% respectively. The price of 10.11 is slightly above the average which has varied between 9.46 and 10.58 over the last 10 years.
So based on this historical information it doesn't look like a horrible time to buy the fund.
Of more interest to me is to break down the bond market into various parts. These are all Vanguard bond SEC yield figures (Admiral shares where available add another ~.1%). Of course yield is not equal to the total return due to price changes in the fund, but most Vanguard bond funds trade in a fairly narrow range of $10 +/- $.50 over long periods.
Type | Short | Intermediate | Long |
Bond Index | 2.39% | 4.55% | 5.43% |
Treasury | 1.88% | 2.29% | 3.52% |
Corporate (A) | 4.60% | 6.01% | 6.68% |
Municipal | .62% | 3.42% | 4.02% |
GNMA | N/A | 4.29% | N/A |
Hi Yield | N/A | 10.04% | N/A |
Hi Yield Muni | N/A | N/A | 4.8% |
I find the difference in yields between the Treasury and Municipal/Investment grade corporates to be remarkable wide (and one can find lots of info on the web documenting this),especially at the intermediate duration.
Now is the prospect of 6% yield on corporate enough to compensate for the risk of prolonged recession increased corporate defaults AND the prospect of high inflation down the road? I don't know with great confidence, but if I am looking at 4% SWR that rate does allow for 2% inflation close to the historical average. If I was still working and had a household income near the 250K range, I'd find the 3.42% or 4% Muni bond funds at least marginally attractive. For those with a higher risk tolerance, if you think this government stimulation will work, as I do, the double digit yields of the High Yield look very attractive.
Finally, any question about bond funds has to be put in the context of compared to what. The stock market is up more than 20% in the last 6 weeks, while there are glimmers of hope in the economy, it is entirely possible this is all an illusion. CD offer safety the certainly don't offer much in the way of returns Vanguard show CD rates as follows 1 year 1.35% 2 year 2.75% 3 year 3.35% and 5 years 3.5%, significantly lower than any non-treasury bond fund.