Do you needs bonds?

[qldfrog]

Yes bboz is leveraged, there is a non leverage bear market code is it "bear"?..use to have some but better to spend less on bboz with same purpose.i use bboz as an insurance

 

[aus_trader]

Yes bboz is leveraged, there is a non leverage bear market code is it "bear"?..use to have some but better to spend less on bboz with same purpose.i use bboz as an insurance

Yes the non-leveraged instrument for taking a -ve view on the ASX is "BEAR". Either one can be used, depends on your risk appetite.

 

[trading_rookie]

I would imagine the unit price would move based on total return, eg: based on both interest payments made and the changes to the price of the bond

Bit of background...back in the bad ol' days of the GFC, Tabcorp, desperate for cash were offering corporate bonds with a bonus coupon rate of something like 4% + the 30 day cash rate (equated to roughly 7- 8% p.a. initially) over a period of 5 years. I paid $100 a unit, and I think they rose to a high of $105 before returning to par just before maturity.

I thought I understood bonds well enough....seems I don't. With the cut in the aussie interest rate, my understanding is 'fixed' interest-rate bonds should be increasing in price since any new issued bonds will come with a lower coupon rate than the one's already issued – meaning they are more attractive in the Bond Market.

Yet, what I'm seeing within my Australian bond index fund is the opposite. The annualised rate of return for this year has dropped from 7% to 6% since the rate cuts this year.

Article upon article is talking about yields turning negative, causing the bond price to increase - which I would have assumed is great for an Index bond fund, where price would mean a lot more than interest payments of those who own bonds outright and looking for a higher yield on their investment.

Remember Bond prices rise and fall based on a range of factors just like share prices.

Besides cash rate what other factors affect a bonds price? I have researched and researched how bond traders operate and I can’t find any other reference than cash rates. If you have a link or info to share, it would be very much appreciated.

 

[aus_trader]

Besides cash rate what other factors affect a bonds price? I have researched and researched how bond traders operate and I can’t find any other reference than cash rates. If you have a link or info to share, it would be very much appreciated.

Bonds also act as a wealth preservation tool during share market downturns. This actually makes sense if we think about it. During market downturns money comes out of equities due to panic selling and some funds liquidating risky stock holdings. Some of that cash gets parked in safe assets like Bonds, Gold and Term Deposits. So this "flight to safety" tends to have a net buying effect of Bonds and therefore tends to be a stable asset class during market turmoil.

 

[ducati916]

I would imagine the unit price would move based on total return, eg: based on both interest payments made and the changes to the price of the bond

Bit of background...back in the bad ol' days of the GFC, Tabcorp, desperate for cash were offering corporate bonds with a bonus coupon rate of something like 4% + the 30 day cash rate (equated to roughly 7- 8% p.a. initially) over a period of 5 years. I paid $100 a unit, and I think they rose to a high of $105 before returning to par just before maturity.

I thought I understood bonds well enough....seems I don't. With the cut in the aussie interest rate, my understanding is 'fixed' interest-rate bonds should be increasing in price since any new issued bonds will come with a lower coupon rate than the one's already issued – meaning they are more attractive in the Bond Market.

Yet, what I'm seeing within my Australian bond index fund is the opposite. The annualised rate of return for this year has dropped from 7% to 6% since the rate cuts this year.

Without having more information, the bold underline could be the source of your issue.

If the 30 day rate is variable, then that is a variable part of your total return. As rates fall the 30 day [is presumably falling] and reducing your return.

jog on
duc

 

[trading_rookie]

Dukes, those bonds matured 5yrs ago

I mentioned them to highlight this wasn't my first foray into the bond market.

If the 30 day rate is variable, then that is a variable part of your total
return. As rates fall the 30 day [is presumably falling] and reducing your return.

That's right, and exactly what happened. Overall, they returned an average of 8.1% pa over the 5 yrs they were issued.

What was bothering me is understanding what is influencing the daily change in a bond index funds unit price I'm invested in.

I was aware of price vs yield, and assumed a lower cash rate would cause a price increase which would be reflected in the index funds unit prices.

This is not what I'm seeing.

OK, as others have alluded to, news and events is the root cause of a bond price going up and down, every minute, hour, and day.

So basically, bond traders in the secondary market are buying and selling bonds based on the news and events that are happening, be it cash rates, sovereign debt etc.

It's a start, just wish I could find a resource with more detailed info.