If you hold Vanguard GNMA like I do, then you will be pleased to know, regardless of its price being down, that as of 12/31/23, its yield to maturity was 4.6%. Sure, it’s been a rough ride for its price from the aftershock of historic interest rate hikes. But as you all know, Your Survival Guy doesn’t get too worked up about prices. At today’s yields, legacy positions maturing will be invested at rates you can sink your teeth into.
But what if interest rates spike from here? So what? As investors look at the landscape of the huge debt overhang, won’t interest rates have to go higher? Maybe. Not my concern. Whenever I can get over 4.5% with explicit backing, as is the case with GNMAs, I like what I see. Obviously, this chart can be interpreted as a disaster waiting to happen.
But here’s why I like GNMA. Your duration, the sensitivity of bond prices to interest rate movements, is 6 years. (This means its price would fall about 6% if interest rates rise 1 percentage point. On the other hand, prices would rise by about 6% if interest rates fall by 1 percentage point.) I’m not concerned about the price movement, though; I’m saying “Self if the Fed cuts short-term rates, at least I have this in the bag with an average duration longer than a few months.”
Action Line: Tak action. Beat inertia. If you need help, I’m here.
