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Vanguard launches Extended Duration Treasury Index Fund and ETF

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Vanguard has launched a long-duration bond fund, which includes an exchange-traded share class, on the American Stock Exchange The new Vanguard Extended Duration Treasury Index Fund will s

Vanguard has launched a long-duration bond fund, which includes an exchange-traded share class, on the American Stock Exchange The new Vanguard Extended Duration Treasury Index Fund will seek to match the performance of the Lehman Brothers Treasury Strips 20-30 Year Equal Par Bond Index. It will have a duration ranging from 20 to 30 years.

The new fund is managed by Vanguard Fixed Income Group, which oversees USD 336 billion in assets, including USD 82 billion in bond index fund assets.

Vanguard has launched this fund primarily to address the need for a low-cost solution to help institutions reduce volatility in their defined benefit plan funding. It states: ‘The Institutional and Institutional Plus share classes will address those needs. The ETF share class also can address the need of financial advisors who oversee smaller defined benefit plans and those interested in a low-cost, long-duration bond option for their clients.’

"We have witnessed a sea change in how our clients are managing defined benefit plans as a result of the Pension Protection Act of 2006," says Vanguard Chairman and CEO John J Brennan. "Long-duration bond portfolios can be an important part of an overall solution for pension plans seeking to balance their portfolio risk to pension liabilities."

As a result of new accounting and pension funding regulations, institutions need to manage volatility in their pension plans more closely to reduce the risk of financial statement impact and having to make large contributions. Increasingly, plan sponsors have focused on liability-sensitive investing, which often leads to inclusion of a long-duration bond investment within the overall portfolio. Long-duration bonds can help reduce pension volatility by better aligning the duration of assets with that of pension obligations.

With the addition of this new fund, Vanguard now offers investors 34 ETFs, all of which are listed on the Amex, which lists 380 ETFs to date.

"Amex is proud to support Vanguard, a recognized leader in the ETF space, as they continue to add to their family of fixed income ETFs," says Scott Ebner, Senior Vice President of the Amex ETF Marketplace. "This is the first ETF to provide investors with exposure to a portfolio of long duration zero- coupon Treasury Strips."

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