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Vanguard Total Bond Market Index Inv Message Board

  • bergholt Feb 7, 2011 2:32 AM Flag

    Question for the bond gurus

    My wife just swapped out of a proprietary fund in her 401K (lack of transparency and a high expense ratio to boot) which purported to be a 60/40 balanced fund. To replace the 40% bond component, she swapped into VBMFX. Here's the question: has the fund (wisely) eased up on its maturities such that the duration is actually less than the stated 4.8?

    I'm sure you all know the rule of thumb, for every 1% up or down in an interest rate you go up or down the duration inversely. To look at rates, I used UST7Y, since it appears closest to the average stated maturity of this fund. On Nov 5, UST7Y was at 1.73%; on Feb 5, it's at 3.01%. That's an increase in yield of about 1.25%. Multiply that times 4.8, and this fund should be down 6% from its value on Nov 5. It's not, at least insofar as I can tell.

    The price on Nov 5 was 10.80. The price now is 10.47. By rights, shouldn't it be around 10.15?

    Thanks in advance.

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11.10+0.05(+0.45%)Jan 30 6:25 PMEST

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