Personal Investments • Best approach to minimize taxes Fed and State (CA) calculators tools?

If intermediate-term yields are lower than money-market yields, this implies that bond traders expect rates to fall, so that the one-year return of the bond fund will be higher than the current yield.

Curious if you can please explain this in the current market situation we are in.
VCDAX is currently lower then VUSXX/VMFXX(FMM) tracking, if bond traders expect rates to fall, despite feds holding steady for now i would hedge they eventually fall, but would that not mean the one-year return of VCADX if I'm understanding your statement should be higher than the current yield which is between 4-5%?

Yes, this is correct. The current yield on VCADX is 3.38%. If the yields on the bonds in the fund do not change, the fund will earn 3.38%. Since the fund has a duration of 5.4 years, it will gain 1.35% if the yields on its bonds fall by a quarter of a percent; this would give it a one-year return of 4.51% if the decline occurs steadily over the year (so that the average yield during the year is 3.26%, dropping to 3.13% at the end).

"An intermediate-term bond fund will outperform a money-market fund of the same time if interest rates change as expected, but with more risk."

At what rate does the intermediate bond become advantageous, when rates are near 1-2%? Currently with rates between 4-5% the clear winner has been VUSXX?

There is no clear winner going forward for everyone, because you cannot effectively time the bond market. In an efficient market, the expected return of intermediate-term bonds should be slightly higher than the expected return of money-market funds, because of the risk; investors will only take a risk if they get a premium for that risk. There may be a clear winner for you based on your risk tolerance and intended use of the money.

And as for munis versus Treasuries, the winner depends on your tax situation. The current yield on Vanguard Intermediate-Term Treasury Index is 4.42%. In a 22% or 24% bracket, the Treasury fund will have about the same return as the muni fund, which makes the Treasury fund better because it has less risk. In a 32% bracket, you would prefer munis for the higher after-tax yield.

Statistics: Posted by grabiner — Mon Feb 03, 2025 10:22 pm — Replies 22 — Views 1452

---