How bond index ETFs work

Discussion in 'ETFs' started by ross1985, Jan 23, 2017.

  1. ross1985

    ross1985

    I have a question about bond index ETFs. I understand that a bond index ETF will rise in price if interest rates go down. What I don’t understand with bond ETFs is how interest is paid to the bond holder. Is it paid out quarterly like a stock dividend? I’m also having trouble finding out how much interest a specific bond index fund pays out (XBB iShares Universe Bond Index Fund on the Toronto Stock Exchange)
     
  2. xandman

    xandman

  3. ross1985

    ross1985

    So it says the distribution frequency is monthly. So I'm assuming that means interest is paid monthly? And the trailing 12-month yield is 2.58%. I just want to be sure I'm understanding correctly. That means the average interest for the last 12 months was 2.58%. So if you invested $1000 twelve months ago it would have yielded $25.80 in interest? Sorry, I know these are very basic questions.
     
  4. xandman

    xandman

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    No worries. You are correct about monthly distributions and the annualized cash yield of $25.80.

    Btw, if your are looking at this fund as an alternative to cash, it is very aggressive/risky. Note the Effective Duration. A 1% rise in rates translates to a 7.35% loss.
     
  5. java

    java

    I lost more money trying to avoid rising rates than I will ever lose when they do finally rise. If you have the time, all those bonds ever do is make money. The one that cracks me up is, "If you buy individual bonds and hold to maturity you won't lose." Then what? Buy another bond and hold it to maturity? What do you think the etf does?
     
    ross1985 likes this.
  6. dealmaker

    dealmaker

    Right, if....