Shouldn't they be more valuable if they yield more?
2007-06-07 08:26:47 · 7 answers · asked by Anonymous in Business & Finance ➔ Investing
*Your* bonds (in your mutual fund) are not yielding more. They're yielding the same they always have. They're "fixed income," remember?
What's happening is that *new* bond yields are going up. This makes your current bond holdings less valuable in comparison with new bonds. So the value of your current holdings goes down.
2007-06-07 09:08:31 · answer #1 · answered by Anonymous · 4⤊ 0⤋
Bond yields and interest rates have an inverse relationship. If interest rates are expected to decrease your bond increases in value, but if rates are expected to increase the value of your bond decreases.
Bonds are a fixed income investment. The coupon rate of the bond is set at the issue date. If rates decrease, the bond that you hold increases in value because you have locked in that higher yield. However, if interest rates increase your bond becomes less valuable because the new bonds that are being issued have higher yields.
2007-06-07 10:13:44 · answer #2 · answered by Ashley I 2 · 1⤊ 0⤋
Because that's how bonds work. Think of a see-saw with rate on one side and price on the other. They are inversely related. If rates go up your bond rate can't increase so the price goes down to reflect the change. The yield is increased but only through price decrease. If rates decreased then bonds would increase to keep the yield consistent with market conditions.
2007-06-07 08:34:48 · answer #3 · answered by Anonymous · 2⤊ 0⤋
Bonds pay a fixed amount. If they yield more, then the principle value dropped. Your bond funds are valued in the value of the principle--not the yield. Yield rises, principle falls, vice versa.
If you are holding a bond until maturity, then the only worry you have is if the company will still be around and able to pay back the face value (principle). Meanwhile, you are milking their cow for income.
But if you are holding bonds in a bond fund, you are expecting sustained or appreciating value of the bonds--so you want either interest stability or falling interest values. Sorry. Bonds can get complicated (as if stocks weren't). But something to consider, and it is called Market Timing, if stocks are doing poorly--buy bonds, vice versa.
2007-06-07 08:45:05 · answer #4 · answered by Rabbit 7 · 1⤊ 1⤋
1
2017-02-14 18:40:09 · answer #5 · answered by Anonymous · 0⤊ 0⤋
bond yeilds are inversely proportional to the price of the Bond so with yeilds rising, the prices are going to fall hence the falling of your bond fund.
2007-06-07 09:12:19 · answer #6 · answered by wfc 2 · 1⤊ 0⤋
i think it's because they have inverse relationship.
2007-06-07 17:26:59 · answer #7 · answered by Anonymous · 1⤊ 0⤋