Morningstar’s Intermediate-Term Government Bond category is by far the largest of all government bond categories. Investors like the safety (government bonds) and low risk (intermediate-term bonds don’t move much with interest rate swings).
For the entire intermediate-term government bond category, 10-year annualized returns (though 2007) were 4.93 percent. Within that category, funds focusing on mortgage-backed securities from Ginnie Mae beat the category norm. Vanguard GNMA fund, for example, posted a 5.76 percent annualized return for those 10 years.
What’s more, those returns came with modest risks. In the past 28 quarters, though 2007, large Ginnie Mae funds had only six or seven down quarters. Most of those quarterly losses were less than 1 percent, and all the funds had positive returns in each calendar year.
Yields have been appealing, too. In early 2008, when Morningstar put the average yield for the entire intermediate-term government bond category at 4.4 percent, popular Ginnie Mae funds were paying around 5 percent. The higher yield comes from the fact that Ginnie Mae pass-through certificates may have the same credit quality as Treasury bonds but they pay more interest.
