This bonus episode is a masterclass on bond investing. They discuss measures of bond yields, estimating returns for bond funds, and a bond type with a U.S. government guarantee. They also explore the challenges of the current rate environment, the relationship between bond prices and yields, and the impact of changing interest rates on bond investments. Additionally, they discuss the role of the Federal Home Loan Banks in the mortgage market and their implied guarantee from the U.S. government.
33:07
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Quick takeaways
Different bond yield measurements: trailing 12-month yield, yield to maturity, and SEC yield.
Starting yield to maturity as the best estimate for bond fund or ETF returns.
Deep dives
Different Types of Yield Measurements for Bonds
In this podcast episode, three segments from recent Money for the Rest of Us Plus episodes on bond investing are shared. The first segment discusses the different types of yield measurements for bonds, including the trailing 12-month yield, the yield to maturity, and the SEC yield. The challenges in measuring bond yields in the current rising interest rate environment are also discussed.
The Best Estimate of Bond Returns: Starting Yield to Maturity
The second segment explores why the starting yield to maturity is the best estimate of a bond fund or ETF's return. It examines how long you need to own a fund or ETF to earn that expected return if interest rates rise or fall. The starting yield to maturity is shown to be a powerful tool in estimating bond fund or ETF returns.
The Bonds of the Federal Home Loan Bank
The final segment focuses on bonds issued by the Federal Home Loan Bank (FHLB). These bonds yield more than U.S. Treasury bonds and have the implicit guarantee of the U.S. government. The FHLB's history, purpose, and operation are discussed, highlighting the secure nature of its bonds and the benefits of investing in them.
Three additional insights to help you confidently invest in fixed income. First, what are the different measures of bond yields, and which is best? Second, how to estimate the return for a bond ETF or fund and how long do you have to own it to achieve that annualized return? Finally, we explore a bond type that yields more than U.S. Treasuries, has never defaulted, and has the implicit guarantee of the U.S. government.