I've taken over managing my mothers 401k, and she has both of these funds available. She is currently invested in VBMFX. If we assume interest rates are going up as the economy slowly recovers, would moving some money into VFSTX be a prudent thing to do? Doesn't seem quite as volatile as VBMFX, and I've read that Treasuries (big VBMFX holding) have been bid up pretty high, higher than corp bonds. Just wondering how interest or even a stronger dollar might affect the performance of these two bond funds. Thanks.
It funny you wrote this. I moved my VBMFX to VFSTX this week, and none to soon. IMO, VFSTX is where you have to be right now, it might even turn out that a money market fund might be necessary, but I do not think we are there yet. Bonds are heading lower, with rising interest rates.
Below is from Richard Russell's dowtheoryletters.com comments from today, 12.24.09, (which I highly recommend, it is $300 a YEAR and every market day he writes a blog, with newsletters about every three weeks- I have no connection):
"Let's start with "where it's happening." I've said all along that the Fed can continue to print their phony money until "the bond market says they can't." The daily chart below shows the long-term or 30-year T-bond falling out of a head-and-shoulders formation and plunging to the 115 level (red arrow). The "bond vigilantes" are finally talking, and they are saying, "enough." As bonds plunge, and rates continue to rise, dollars become more attractive. The rallying dollar puts pressure on gold, which is now correcting."
$USB closed today at 116, this chart is available at stockcharts.com.