Bond Investing Master Class - How to Invest in Fixed Income
Money For the Rest of Us
00:00
How Long Does a Bond ETF Last?
There is a mathematical relationship between how sensitive a bond price is to changes in interest rates. A one percentage point increase or decrease in interest rates will cause an individual bond bond fund or bond ETF to fall or rise in price by roughly the amount of its duration. For example we own a bondETF that has a six-year duration if interest rates increase by one percentage point the bond investment will fall in price by about six percent. If interest rates fall one percent the market price of that bond index would increase by six percent. The longer the duration the more price sensitive the bond or bond fund is. Some bonds duration gets longer as interest rates fall and as interest rates go up the duration gets shorter
Transcript
Play full episode
