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Author: wcfenton Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35392  
Subject: Total Bond Market ETF Date: 4/21/2003 2:07 PM
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Greetings...

I recently discovered that iShares (BGI) was going to introduce a "Total Bond Market" Index Fund in an ETF format sometime in the near future:

http://www.ishares.com/newsroom/detail.jhtml?start=1&pr=%2Frepository%2Fpress_release%2F2003%2Fpr_13_march_2003.xml

This is of some interest to me as I have wanted another fixed income type ETF to add to my portfolio for some time now. I only have a REIT ETF to offset my equity investments.

I was wondering if there was anyone else who might be interested in this new ETF and what their feelings might be. BTW, I'm already retired with a pension so I am unable to fund an IRA (no earned income) and my portfolio is in a taxable account.

I look forward to any comments...

Regards,
Bill
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Author: brucedoe Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6930 of 35392
Subject: Re: Total Bond Market ETF Date: 4/22/2003 9:35 AM
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You will be buying at a high if you do this, although the income should increase as the price of bonds falls. Maybe this is important to you?

brucedoe

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Author: wcfenton Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6931 of 35392
Subject: Re: Total Bond Market ETF Date: 4/22/2003 12:58 PM
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Greetings brucedoe...

You will be buying at a high if you do this, although the income should increase as the price of bonds falls. Maybe this is important to you?

I haven't studied the bond market I'm afraid. I just know that it is financially prudent to allocate your assets as best you can. I have never thoroughly understood the correlation between bonds and the interest rate.

Basically, what I understand (I think) is that when interest rates go up...bond values (meaning both purchase price [NAV] and yield for new bonds) go down. Is that basic assumption correct? I have also heard that even if a person invests in a widely diverse total bond index fund that they would loose some, but not a significant portion, of their investment if interest rates go up.

Also, how is periodic income produced...coupons? How do they work?

I appologize, I should have done my homework. Any lessons given, however, will be gratefully received.

Thanks,
Bill



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Author: Lokicious Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6932 of 35392
Subject: Re: Total Bond Market ETF Date: 4/22/2003 2:42 PM
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Bill,

The easiest source on interest rate risk on bonds is Vanguard 's web site But basically a fund's NAV will drop (or gain) by the average duration of its bond holdings times the change in basis points of the equivalent bonds to those it holds. With the Total Bond Market fund, roughly speaking its NAV will drop 5% for each 100 basis point increase in 5 year treasuries (since its average duration is about 5%)—this is ball park, since it also holds corporate bonds.

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Author: wcfenton Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6933 of 35392
Subject: Re: Total Bond Market ETF Date: 4/22/2003 3:03 PM
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Lokicious...

Thanks...I think! LOL!!

The easiest source on interest rate risk on bonds is Vanguard 's web site But basically a fund's NAV will drop (or gain) by the average duration of its bond holdings times the change in basis points of the equivalent bonds to those it holds. With the Total Bond Market fund, roughly speaking its NAV will drop 5% for each 100 basis point increase in 5 year treasuries (since its average duration is about 5%)—this is ball park, since it also holds corporate bonds.

Wow! I'm a little slow on the uptake, so, I'll probably have to read your explanation a few times to allow it to sink in. It sounds like physics in financial terms. I'll also visit the Vanguard site Lok.

Thanks again,
Bill

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Author: wcfenton Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6934 of 35392
Subject: Re: Total Bond Market ETF Date: 4/22/2003 4:32 PM
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Greetings...

For those of you who may be following this thread and are interested in the Vanguard Bond Information Pages that Lokicious mentioned in his post, I submit the following link for your perusal:

http://flagship5.vanguard.com/web/planret/AdvicePTIBInvestmentsInvestingInBonds.html

I'm still learning about bond investments, however, if iShares delivers their new Total Bond Market Index ETF as promised, I'm pretty sure that I will take a taste.

Thanks to all who contributed to my ever continuing education in the fasinating world of investing. The market and all it implies has kept my retirement interesting, to say the least.

Regards,
Bill



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