Prospectus updates were filed with the U.S. Securities and Exchange Commission, proposing the changes to all share classes of the following funds:
- Vanguard Short-Term Government Bond Index Fund
- Vanguard Intermediate-Term Government Bond Index Fund
- Vanguard Long-Term Government Bond Index Fund
Each fund will track a pure Treasury benchmark and no longer hold government agency-issued securities. This includes debt issuance from Federal Home Loan Mortgage Corporation and Federal National Mortgage Association, known as Freddie Mac and Fannie Mae, respectively.
The benchmark changes will occur over several days in the fourth quarter of 2017 and aren’t expected to affect the funds’ expense ratios. And while the fund names will change, their tickers will stay the same.
The weight of agency-issued securities within the government segment of each fund is relatively small and has been declining steadily for years. We expect this trend to continue. With the new pure Treasury benchmarks, the funds will offer investors a more risk-controlled way to express duration views. In addition, since Treasuries are more liquid than agency-issued securities, the ETF share classes of the funds could benefit by experiencing lower spreads.
Agencies have shrinking share of index
Source: Bloomberg Barclays, 2016 and 2017.
*As of June 30, 2017.
Note: The chart depicts the share of U.S. Treasury and U.S. agency issues in the Bloomberg Barclays U.S. Government Bond Index and highlights the declining portion of government-agency issues over time.
New names & benchmarks
The affected funds and tickers and their proposed new names and benchmarks are shown below.
Current Vanguard fund name
New Vanguard fund name
Ticker (no change)
Short-Term Government Bond Index Fund
Short-Term Treasury Index Fund
Bloomberg Barclays U.S. 1–3 Year Government Float Adjusted Index
Bloomberg Barclays U.S. Treasury Bond 1–3 Year Term Float Adjusted Index
Intermediate-Term Government Bond Index Fund
Intermediate-Term Treasury Index Fund
Bloomberg Barclays U.S. 3–10 Year Government Float Adjusted Index
Bloomberg Barclays U.S. Treasury Bond 3–10 Year Term Float Adjusted Index
Long-Term Government Bond Index Fund
Long-Term Treasury Index Fund
Bloomberg Barclays U.S. Long Government Float Adjusted Index
Bloomberg Barclays U.S. Long Treasury Float Adjusted Index
Vanguard believes these changes are in the best interests of fund shareholders. The funds’ advisor, Vanguard Fixed Income Group, expects to manage each fund’s transition in such a way that trading costs will be moderate. Capital gains distributions aren’t expected to occur as a result of the changes.
All investing is subject to risk, including the possible loss of the money you invest.
Bond funds are subject to interest rate risk, which is the chance bond prices overall will decline because of rising interest rates, and credit risk, which is the chance a bond issuer will fail to pay interest and principal in a timely manner or that negative perceptions of the issuer’s ability to make such payments will cause the price of that bond to decline.
While U.S. Treasury or government agency securities provide substantial protection against credit risk, they do not protect investors against price changes due to changing interest rates. While the market values of government securities are not guaranteed and may fluctuate, these securities are guaranteed as to the timely payment of principal and interest.
Vanguard ETF Shares are not redeemable with the issuing fund other than in very large aggregations worth millions of dollars. Instead, investors must buy and sell Vanguard ETF Shares in the secondary market and hold those shares in a brokerage account. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.