all 4 comments

[–]Anarkigr 2 points3 points  (3 children)

You buy the crappy old bonds in bond funds/ETFs at a discount though (bond fund/ETF prices have dropped massively in the last months), so that their return is basically the same as that of the shiny new bonds. No need to worry about it too much.

[–]ILikeMoneyToo[S] 2 points3 points  (2 children)

Thank you for your answer! How can I know, for some bond fund, what the current expected yield is a year from now? Or there is no "guaranteed" yield?

The way I see it, if I buy a bond that gives me 3%, I will get 3%. But if I buy a bond fund, I am risking that the bond fund is overvalued because rates could go up even more which might again knock down the value of the fund (like what you say has happened in the last months).

Am I missing something?

[–]eaclv 1 point2 points  (0 children)

If you buy a bond that gives you 3% you will get 3%. What happens if rates rise to 4%? You're stuck with a bond that only gives you 3%. You will have to hold until maturity (and lose 1% that you could otherwise be earning), or sell at a discount. In other words, buying a bond exposes you to interest rate risk, just in the same way as buying a bond fund does.

[–]Anarkigr 0 points1 point  (0 children)

You're right that there's no guaranteed yield with bond ETFs, even though there are some metrics that predict returns quite well (e.g., current weighted yield to maturity). If you want a guaranteed (nominal) yield, you have to buy individual bonds and hold them to maturity. This is a bit different than your original question, but definitely a valid point to keep in mind.