J.D. Steinhilber

Replacing Barclays iShares Bond ETFs With Vanguard's New Bond ETFs

David,

Short term rates would have to move up nearly a point before the break-even analysis on this turns negative on the Vanguard fund, which has only a half year's additional duration. I don't think short-term rates are going to move up that much and may very well start coming down in the second half of the year, which would add an additional element of return potentially to the slightly longer-duration Vanguard fund.

J.D.

Replacing Barclays iShares Bond ETFs With Vanguard's New Bond ETFs

David,

I think yield to maturity is a bit fuzzier inside a bond fund as opposed to an individual bond that an investor plans to actually hold to maturity, so I also look at the monthly distribution and determine what that implies on a current cash on cash yield basis. For SHY, this figure is approximately 4.45% (surprisingly low) and for BSV (using VBIRX, the underlying Vanguard fund, as a proxy) the yield is 4.75%, so yes, I do think the extra half-year of duration risk is worth it.

J.D.