Bond funds can be sold at any time for their current market net-asset value, which may result in a capital gain or loss.
Why are bonds going down?
Bond prices decline when interest rates rise, when the issuer experiences a negative credit event, or as market liquidity dries up. Inflation can also erode the returns on bonds, as well as taxes or regulatory changes.
Should you sell the bond or continue to own it?
You should continue to hold the bond because the bond’s yield to maturity is higher than your expected rate of return and thus it is undervalued. You should sell the bond because the bond’s yield to maturity is lower than your expected rate of return and thus it is overvalued.
Why are people forced to sell their bonds?
This means the media itself can cause a self-fulfilling prophecy in bond funds. People read they should sell bonds because they might lose money. People sell them in mass. The mutual fund is forced to sell bonds at a less than optimal time. The bond fund’s share price goes down.
What happens if I Sell my Bond at maturity?
If you try to sell your bond at this point in time, you will receive less than you paid for it, because its coupon rate is lower than the going rate. But if you hold your bond to maturity, it doesn’t matter — you’ll get your $10,000 back. In a bond fund, however, it doesn’t quite work this way. Bond funds own hundreds, sometimes thousands of bonds.
Can a bond be sold at a discount?
For example, if interest rates have risen since the bond was purchased, the bondholder may have to sell at a discount—below par. But if interest rates have fallen, the bondholder may be able to sell at a premium above par.
Is it better to sell a bond or hold it?
Bond investors often are in it for the long-haul, earning regular interest payments until the debt matures. Investors of bonds, however, may decide it is more advantageous to sell a bond rather than hold it to maturity.
