How to interpret price of BND?

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duricka
Posts: 26
Joined: Sat Oct 28, 2017 9:18 am

How to interpret price of BND?

Post by duricka » Tue May 14, 2019 6:33 pm

If BND is $81.19 what does it mean?
Does it mean I earn 1% less when compared to BND bought for $80.38?
At what point it's better to buy bonds directly?

mhalley
Posts: 6859
Joined: Tue Nov 20, 2007 6:02 am

Re: How to interpret price of BND?

Post by mhalley » Tue May 14, 2019 7:16 pm

In general, navs do not matter. I think I read that buying individual bonds was not a good idea until you had 500k, and then the benefit was marginal. Most here would say just buy the bond fund.
https://buckinghamadvisor.com/deciding- ... er-042413/

dalbright
Posts: 110
Joined: Sun Oct 21, 2018 6:23 am

Re: How to interpret price of BND?

Post by dalbright » Tue May 14, 2019 8:09 pm

I would not personally buy the "bonds" directly that compose something such as BND as there are components of it that have large spreads and various risks such as default. That being said I do like to buy treasury bills if the yield is greater than the money market due to the tax savings. Treasury bonds are nice in that you can purchase them and know exactly how much money you will make at x date in the future, whereas BND and other funds are constantly buying new funds when one matures. You get a great deal of diversity with a fund such as BND as well.

bizkitgto
Posts: 30
Joined: Tue Mar 14, 2017 11:54 am

Re: How to interpret price of BND?

Post by bizkitgto » Wed May 15, 2019 1:17 pm

BND is a great fund, very tough to beat for fixed income. I hold BND for defensive purposes, and in market drawdowns I can easily rebalance my asset allocation and sell BND quickly and easily. BND is very liquid, how easily can you sell 'actual' bonds?
Keep it simple: 20% BND, 50% VTI and 30% VXUS

venkman
Posts: 939
Joined: Tue Mar 14, 2017 10:33 pm

Re: How to interpret price of BND?

Post by venkman » Wed May 15, 2019 10:07 pm

duricka wrote:
Tue May 14, 2019 6:33 pm
If BND is $81.19 what does it mean?
Does it mean I earn 1% less when compared to BND bought for $80.38?
The best measure of what you will earn going forward if you invest in a bond fund is the current SEC yield.

While fund prices change with movements in interest rates, they can also change as the bonds they own get closer to maturity and their price moves closer to par value. This happens in funds where the SEC yield differs from the current distribution yield. Part of the expected return includes changes in the NAV price of the fund.

lack_ey
Posts: 6668
Joined: Wed Nov 19, 2014 11:55 pm

Re: How to interpret price of BND?

Post by lack_ey » Wed May 15, 2019 10:33 pm

It's the price that the market last traded at for that security, which now and usually is pretty close to the market value of the underlying holdings of the fund divided by the number of shares outstanding (okay, there's some further wrinkles because the underlying fund has mutual fund share classes too). It's pretty close in part as a result of explicit and commonplace arbitrage mechanisms, and the fact that shares can readily be created or destroyed.

As always you would prefer the lower price when buying, but if the price is $80.38 one day and $81.19 the next, that's a reflection of the value of the holdings changing. If the price is $80.38 now and $81.19 five years later, that's harder to judge as bonds cycle in and out, it's no longer the same securities, yields have changed, there may have been defaults, etc.

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