In an environment when interest rates are forecasted to rise, is there any reason to invest in a bond ETF as opposed to a traditional government bond?
My understanding is that the value of the bond may change during its life, but upon maturity, the principal and interest are both paid in full (ie principal + interest, guaranteed for AAA bonds). One's "loss" may be understood as the difference in the bond's face value upon purchase and a potential increase in yield for that same bond during its life as a result of rising interest rates.
In bond ETFs, I understand that the value is inversely proportional to interest rate increases, or perceived sentiment on interest rate increases. Unlike actual bonds, there is no guarantee of one's principal being repaid in full should rates rise and ETF price drop.
If the above statements are correct, why then would anybody wanting fixed income opt for a bond ETF? While less volatile than equity ETFs, all seem to be on a downward price trend for the last 2 years or so.
Submitted February 16, 2018 at 02:27AM by LoneStarGeneral http://ift.tt/2EtFHUM
