OK thank you for that explanation. I suppose this makes the comparison with CDs and treasuries difficult. My own thinking was guided simply by what BND/VBTLX deposits as interest payments on a monthly basis and comparing that to what the other instruments would have yielded. After all, that is all I should really care about to make an apples to apples comparison in terms of income yielded. No?In general duration references a process in which volatility in interest rates is translated to volatility in bond pricing.
People should always keep in mind that the relationship between the yield on a bond (or fund) and the price is a mathematically rigid relationship due to the definition of bond yield (to maturity). That yield is not same number as yields on different bonds, interest rates on CDs, federal funds rates, and so on. That yield is also not the coupon interest rate with respect to face value of a bond. Yield to maturity is the discount rate that sets the NPV of all the cash flows from a date equal to the price on that date. Whether investors are bidding a price or a yield is really chicken and egg in some ways.
Statistics: Posted by saveninvest — Sun Aug 11, 2024 12:05 pm — Replies 19 — Views 1511