Every day, billions of dollars worth of bonds are traded on the world's financial markets - the bond markets are far bigger than the stock markets. Until the advent of the bond ETF (bond exchange traded fund) it was difficult for small investors to invest in a wide range of bonds with any degree of transparency. Today, everything is different.
Bond ETF will describe for you how you can invest in bond ETFs and the range of Bond ETFs available to trade online through your broker.
How do bond ETFs comapre with the underlying bonds. Do they behave differently? (The answer is yes, they do!) Bond ETFs are not as good at mimicking their underlying assets as stock ETFs.
Would you be better investing in bonds or a bond ETF?
High Yield Bond ETF
High yield bonds - or, less glamorously, junk bonds - or, more precisely, non-investment grade bonds - pay very high interest rates. They need to, because they have been issued by financially troubled companies. For example, your high yield bond ETF might invest in junk bonds paying an average annual return of 10 percent. In any given month, if 10 percent of companies default on their interest payments, the annual return will still be 9 percent.
High yield bonds - or, less glamorously, junk bonds - or, more precisely, non-investment grade bonds - pay very high interest rates. They need to, because they have been issued by financially troubled companies. For example, your high yield bond ETF might invest in junk bonds paying an average annual return of 10 percent. In any given month, if 10 percent of companies default on their interest payments, the annual return will still be 9 percent.
Bond ETF Funds
Bond ETF funds have grown in number with time, allowing investors to choose from a variety of investments including corporate bonds, municipal bonds, government bonds (inflation protected, short, medium, and long-term), high yield corporate bonds (junk bonds), mortgage bonds, etc.
Bond ETF funds have grown in number with time, allowing investors to choose from a variety of investments including corporate bonds, municipal bonds, government bonds (inflation protected, short, medium, and long-term), high yield corporate bonds (junk bonds), mortgage bonds, etc.