If you want to invest in government bonds with Vanguard funds, there are a few primary ways to do it. You can invest in one of three Vanguard treasury bond funds, invest in one of their agency bond funds or invest in a Vanguard index fund that covers all types of government bond funds.
Today we’ll focus on Vanguard funds that hold U.S. Treasury bonds. The three types of treasury bond funds that Vanguard offers are categorized by the primary bond durations, which include short term, intermediate term and long term.
Investors who buy treasury bond funds are usually looking for exposure to a basket of bonds with high credit quality, which means the objective that suits this need is one of conservative income.
In translation, investors looking for high yields aren’t typically buyers of treasury bond funds.
Vanguard Treasury Bond Mutual Funds
Vanguard Short-Term Treasury Fund (MUTF:VFISX): Vanguard’s VFISX fund invests in U.S. Treasury bills, which are short-term bonds with durations that average about two years. Short-term treasury bonds typically have higher yields than money market funds but lower interest-rate risk than intermediate- and long-term bonds. Although they’re not without market risk, short-term treasury bonds can be a good fixed-income choice for conservative investors. Expenses are 0.2% and the minimum initial investment is $3,000.
Vanguard Intermediate-Term Treasury Fund (MUTF:VFITX): Vanguard’s VFITX holds government debt in the form of intermediate-term U.S. Treasuries, which have an average duration of 5.3 years. Intermediate-term bond funds make good core holdings for the fixed-income portion of a portfolio because they generally kick off higher yields than short-term bond funds and carry less interest rate risk than long-term bond funds. The expenses for VFITX are 0.2% and the minimum initial investment is $3,000.
Vanguard Long-Term Treasury Fund (MUTF:VUSTX): Vanguard’s VUSTX invests in a basket of long-term Treasuries that average more than 15 years in duration. Over the long haul, investors can expect VUSTX to produce higher yields and better annual returns than its short- and intermediate-term counterparts, but they’ll have to accept higher interest-rate risk along with them. For example, when interest rates are rising, prices for long-term bond funds tend to fall further than those with shorter average durations. VUSTX has an expense ratio of 0.2% and has a minimum initial investment of $3,000.
As of this writing, Kent Thune did not personally hold a position in any of the aforementioned securities. His No. 1 holding is his privately held investment advisory firm. Under no circumstances does this information represent a recommendation to buy or sell securities.