I am very confused because I thought if interest rates go up, that means bonds now become valuable? What makes a bonds index fund like BND go down? Arent bonds just loans against the government or corporations? Shouldnt that be a good thing all the time? Shouldnt a ticker like BND always be green?? I am so confused!! Thank you in advance for reading and answering my stupid question lol
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New bonds become less valuable since they will be issued with the lower rate. Older bonds are locked in at whatever rate they were issued with so they are now more attractive compared to the new bonds with the lower rate. Thus the older bonds prices go up
Bond funds are backed by a mix of bonds at different maturity times. As the bonds within the fund mature new ones are bought. The fund price will reflect the price of the underlying bonds. If rates go up, the existing bonds in the fund will be less valuable so the fund will go down.
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