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The bond price is calculated by the interest rate movement.
Basically, if the interest rate rises, the existing bond price is easier to fall, and if the interest rate falls, the existing bond price becomes easier.
Bonds may be used as stable assets, but the price does not move.
Especially when buying bond funds and bonds ETFs, you need to understand the risk of lowering interest rate.
Bond price and interest rate are easy to move on
There is interest in bonds.
If the market interest rate rises when the interest of the already issued bond is low, the newly issued bond is more attractive.
As a result, the price of old bonds becomes easier to down.
| Interest rate movement | Existing Bond Price |
|---|---|
| Interest rate rise | Easy to down |
| Low interest rate | Easy to climb |
This relationship is quite useful in bond investment.
If you buy only the image of "Safety Bonds", you may be surprised at the price drop on the interest rate rise section.
Why is the price lower?
For example, a 1% interest in old bonds.
After that, many people want to choose new bonds if they have a new year 3% bond.
To sell an old bond of 1% a year, you need to lower the price and increase the yield for the buyer.
This is a rough mechanism that lowers the bond price due to interest rate rise.
| Bonds | Interests from investors |
|---|---|
| Old Low Yield Bonds | Relatively attractive |
| New High Yield Bonds | High interest and attractiveness |
It seems difficult, but in short, it is said that "If new conditions become better, the bond of old conditions is easy to fall."
Long-term bonds are sensitive to interest rates
There is a due date for bonds.
In general, the longer the term is due, the more the interest rate ctuation becomes easier.
Long-term bonds receive fixed interest over a long period, which makes price adjustments much easier when the interest rate changes.
| Bond Types | Response to interest rate ctuations |
|---|---|
| Short-term Bonds | Smaller |
| Midterm Bonds | Medium |
| Long-term Bonds | Easy to grow |
When you look at Bond Funds and Bonds ETFs, check the average residual period and time zone.
The longer the number, the more sensitive the interest rate ctuation.
Bond funds have different feelings of maturity
Individual bonds are designed to be reimbursed according to the condition if they have to expire.
On the other hand, Bond Funds and Bonds ETFs operate while changing many bonds. The investor has the price of the fund, and it is not the original product if you wait until the expiration.
| Products | Notes |
|---|---|
| Individual Bonds | 体 Issuance Risk and Expiration |
| Bond Fund | Daily stock price |
| Bond ETF | Market price and interest rate ctuation |
Bond funds are convenient, but they are different from deposits.
Just by separating this point, you will be less surprised at the rise of interest rate.
If the interest rate rises, the price of existing bonds becomes easier.
Bonds have a role to facilitate the movement of stocks, but they are not assets that do not have price ctuations.
When choosing a bond or bond ETF, it is safe to check not only the yield, but also the interest rate risk, expiration, accuracy, and foreign exchange risk.