Always worth reading, here’s Swedroe’s recent piece about whether or not to use GNMA (mortgage-backed securities) as your bond allocation:

http://moneywatch.bnet.com/investing/blog/wise-investing/gnmas-you-can-do-better/2887/

Some things he notes:

• A 60/40 portfolio with intermediate treasuries has had a higher return and lower volatility than a similar portfolio with GNMAs
• GNMAs have a higher correlation with equities (which explains a lot of the above point)
• Over extended periods, GNMAs have underperformed treasuries (though they may have a higher current yield – an important point about the difference between yield and total return)

Some things he doesn’t discuss

• Volatility – in isolation – of GNMAs vs treasuries
• Current valuation (especially of treasuries)
• An income-focused portfolio rather than the total-return approach