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A bond fund or debt fund is a fund that invests in bonds, or other debt securities. [1] Bond funds can be contrasted with stock funds and money funds.Bond funds typically pay periodic dividends that include interest payments on the fund's underlying securities plus periodic realized capital appreciation.
It’s important to note, however, that while the individual bonds in a government fund may not be subject to any real credit risk, all bond funds suffer from risks, particularly interest-rate risk.
Here’s a look at the pros and cons of bond funds in a lower interest rate environment. Pros. Rise in bond prices: When rates fall, the prices of bonds held by the bond fund go up. This is ...
High-yield bonds. Sometimes referred to as junk bonds, high-yield bonds offer higher interest rates to investors because they are considered greater credit risks than investment-grade bonds. High ...
If a company changes its dividend policy substantially, it is said to be subject to a clientele effect as some of its investors (its established clientele) decide to sell the security due to the change. Although commonly used in reference to dividend or coupon (interest) rates, it can also be used in the context of leverage (debt levels ...
Risk free interest rates are determined by market forces and vary over time, based on a variety of factors, such as current short-term interest rates, e.g. base rates set by central banks such as the US Federal Reserve, the Bank of England in the UK, and the Euro Zone ECB. If the coupon on the bond is lower than the yield, then its price will ...
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