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4 Vanguard Bond Funds to Buy (And 3 to Avoid) for Higher Interest Rates

Higher rates are coming and now is a good time to distinguish between the best and worst bond funds

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Vanguard Bond Funds to Avoid for Higher Rates: Vanguard Long-Term Treasury (VUSTX)

Vanguard Bond Funds to Avoid for Higher Rates: Vanguard Long-Term Treasury (VUSTX)
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Expenses: 0.2%
Minimum Initial Investment: $3,000

Bond funds that focus on long-term bonds and U.S. Treasury bonds will generally lose to most other bond funds types when interest rates are rising and this makes Vanguard Long-Term Treasury (MUTF:VUSTX) a mutual fund to avoid now.

As this story has pointed out, two of the most interest rate-sensitive types of bonds are long-term bonds and U.S. Treasury bonds. VUSTX holds long-term treasuries, which can potentially make it one of the biggest losers in rising interest rate environments.

While a fund like VUSTX has seen short-term spikes over the past year, the total 1-year return is -6%, which compares to 0.3% for the Barclays Aggregate Bond Index.

As of this writing, Kent Thune did not personally hold a position in any of the aforementioned securities, although some of his client accounts hold VIPSX and VBMFX. Under no circumstances does this information represent a recommendation to buy or sell securities.

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