The Vanguard bond index fund is most likely to be more sensitive to the price movement of the benchmark 10-year treasury bond.
Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) has a “duration” of 5.8 years. The "rule- of- thumb" is that for every + / - 1% move in the benchmark rate, VBTLX will move + /- 5.8%.
If feds increase interest rate to 0.5%, what will happen to my yield and the price of each share?
The yield would move up +0.5% with the benchmark rate, and the principle amount of $10,000 would decrease 2.9% to $9,710. (10,000 x 0.029 = $290; 10,000 – 290 = 9,710)
If feds decrease rate to 0%, what happens?
The yield on your fund would remain relatively stable near the current rate. Your principle amount of $10,000 would remain relatively stable also, but may fluctuate mildly with periodic bond market developments. And if you reinvest the monthly dividends, your principle amount would increase slowly by the amount of the monthly payouts.
If feds decrease to -0.25%, what happens?
The yield on your index fund would likely drop -0.25% along with the downward move in the yield on the benchmark bond, but your principle amount would increase +1.45% to $10, 145 . (10,000 x 0.0145 = $145; 10,000 + 145 = 10, 145).
Referring back to the “duration” of this fund of 5.8 years, you would not have to worry as much about increases in interest rates if you would buy and hold the fund for that time period. You can read more about “the point of indifference” in the Wiki library here:
Hope this helps.