Vanguard states that their index funds are re-balanced every 4 months or when the management (exceptionally) considers it necessary.

I imagine the FED raising rates several times during 2022 and 2023 will make the Vanguard U.S. bonds index funds to get re-balanced, but is there any way to know when will this has already happened, in order to buy fund shares only when it is mostly composed by bonds with the higher rates?

In other words, imagine I want to buy a bonds fund's shares only when it is mostly composed by funds with (at least) 2% of interest rate. Is this possible?


By 'higher rates' I mean interest rates, not the bond rating (AA+, AAA etc.)

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    what will be the thing that makes you sell the bond fund? Commented Mar 24, 2022 at 11:59
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    @DStanley I think 'higher rates' in this case means higher interest rates; it seems the question is assuming [without perhaps fully understanding the intricacies] that arbitrage on the difference between market and fund rates is possible [or a necessary consideration on timing of purchase]. Commented Mar 24, 2022 at 14:29
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    What is your end goal? What do you intend to achieve by buying this way? I sense a misconception somewhere… It's not like buying when the rates are high is going to somehow magically bake that into the fund and make it earn more in the future, compared to buying the same fund at a different time.
    – TooTea
    Commented Mar 25, 2022 at 11:32
  • @TooTea I thought that, if the FED says that it is going to raise interest rates, it makes no sense to buy a bond ETF/index fund since 'tomorrow' bonds in general will be better than those that belong to the mentioned ETF/IF today. However, as explained below, possibly the market will notice this and therefore the price of the ETF/IF will be adjusted. Or I have misunderstood it?
    – Martel
    Commented Mar 28, 2022 at 19:37

1 Answer 1


For a retail investor looking at simplified funds, I think the core assumption should always be that any publicly traded funds are efficiently priced. This concern you have, about the composition of the bond fund relative to current market interest rates, kind of implies that you would need to determine the proper price for these funds. This is something that you can be reasonably confident is already 'priced-in' to the cost of buying into the fund itself, especially for something as streamlined as a lower risk bond fund.

So whether the bonds are comprised of 1% bonds, or 3% bonds, if the current market interest rate for the same risk-level of new bonds is 2%, you can rest assured that there will be a discount or price premium on purchase, that converts the 'effective yield' to 2%.

If you wanted to check that this is the case, you could compare the price of the fund before and after a Fed rate change. You won't see a full 0.25% price adjustment when the Fed changes rates by 0.25%, because the market already expected a change to be very likely, but you will see a slight drop in any fixed income fund after market interest rates go up, to reflect the fact that any product priced by the market yesterday needs to be re-priced today assuming higher yields are possible with comparative products.

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