Bonds & Illusions

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The market, as always, offers choices. Two vessels, ostensibly for navigating the calm waters of fixed income: the iShares 3-7 Year Treasury Bond ETF (IEI) and the Vanguard Total Bond Market ETF (BND). One, a meticulously curated collection of government promises; the other, a sprawling estate encompassing nearly everything that isn’t actively sinking. Both, naturally, are presented as paths to serenity. One suspects the serenity is mostly for the fund managers.

The Accounting of Souls (and Expenses)

Let us begin with the vulgarities. Cost. The iShares fund, a rather exclusive establishment, demands 0.15% for its services. Vanguard, a more democratic (or perhaps simply more efficient) operation, asks for a mere 0.03%. A pittance, one might think. Until one considers the cumulative effect over decades. It’s a subtle drain, like a slow leak in a perfectly polished bathtub. The returns, as presented, are…similar. A one-year similarity, mind you. The market, like a fickle lover, rarely repeats itself. The sheer volume of assets under management – $389.22 billion for Vanguard versus a comparatively modest $18.06 billion for iShares – speaks volumes. It suggests a certain…trust. Or perhaps, a lack of imagination amongst the larger investing public.

Beta, that dubious measure of volatility relative to the S&P 500, is offered as reassurance. IEI at 0.15, BND at 0.27. As if the whims of the stock market have any bearing on the fate of bondholders. It’s like measuring the temperature of a corpse to predict the weather.

Performance & The Illusion of Control

The numbers, when viewed with a jaundiced eye, are less impressive than the marketing materials suggest. A five-year maximum drawdown of -13.89% for IEI, -17.91% for BND. Losses, naturally, are inevitable. The question is not whether one will lose money, but when, and how dramatically. The growth of $1,000 over five years? $902 for IEI, $853 for BND. A pittance, really. Enough to buy a decent bottle of vodka, perhaps. Or a fleeting moment of peace.

The Contents of the Ark

BND, that sprawling estate, holds 15,000 securities. A veritable menagerie of debt. Treasuries, mortgage-backed securities, investment-grade corporates. A diversified portfolio, they say. A way to spread the risk. But risk, like a persistent cough, has a way of finding you. IEI, in contrast, is a purist’s dream. 87 positions, focused exclusively on U.S. Treasury bonds maturing in three to seven years. Pure government exposure. Minimal credit risk. As if the creditworthiness of a government is any guarantee of future prosperity. History, one suspects, suggests otherwise.

What Does It All Mean?

The choice, as always, is an illusion. Do you prefer a broader spectrum of debt, or a concentrated dose of government promises? Both funds, despite the assurances of the analysts, are susceptible to the whims of the market. BND’s price, over five years, has fallen approximately four percent more than IEI’s. A seemingly minor detail, but details, as any bureaucrat will tell you, are everything.

The risk profiles, ostensibly, balance each other out. IEI boasts nearly 100% AA-rated bonds, BND 72% AAA. A comforting thought, until one remembers that ratings are merely opinions, and opinions, like autumn leaves, are easily scattered by the wind.

And then there’s the dividend. BND yields 3.83%, IEI 3.48%. But IEI’s monthly payouts are nearly twice as high, due to a lower share price. A curious anomaly. A magician’s trick. A reminder that appearances can be deceiving. The market, after all, is a theater of illusions. And we, dear reader, are merely the audience.

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2026-02-15 09:23