How do bond prices&yields in mutual funds work?
A bond mutual fund is composed of individual bonds. The changes that affect individual bonds will be reflected in the mutual fund share price and yields.FeaturesA bond mutual fund has a managed portfolio of bonds. The interest earned from the bonds is passed through to mutual fund investors as dividends. The fund yield will be based on the overall yield of the bond portfolio.FunctionBond prices change with changes in interest rates. If interest rates rise, bond prices fall. If rates fall, bond prices increase. Bond mutual fund shares will reflect the bond price changes because of interest rate changes.EffectsShorter-term bonds have smaller price changes in response to interest rates than longer-term bonds. A mutual fund’s average weighted maturity is the average term of the bonds in the fund portfolio.YieldsA mutual fund’s distribution yield reflects the current amount of interest the bonds in the portfolio are paying. The SEC 30-day yield is equivalent to the yield to maturity calcula
