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Let me clarify my question a bit -- I understand the relationship Macauley developed 60 years ago -- the change in price for a single bond is the product of duration times the change in yield.

What I want is a way to estimate the change of a bond fund's price when interest rates generally change. We know mortgages, CD rates, etc. all tend to rise together, but as far as I can tell, the amount CDs go up and 30 year mortgages go up do not seem simply correlated to Fed Funds, or anything else. Hence I don't know how to estimate the change in the price of a Muni Bond fund.


The confusion is that you want to predict relevant interest rates for the bonds held by that fund, which doesn't correlate perfectly with other rates (Fed, CDS, mortgages, etc.). Also, munis have not been moving just with interest rates, which is why the yield on that fund is relatively high compared to a long corporate let along Treasury fund. So, it could well be that if the debt market stabilizes and Treasury yields go back to something other than panic mode, the risk premium on the fund's munis will go down, at least partially compensating for inerest rate risk.

As I think you know, from a pure interest rate formula, using average duration on the fund (always approximate), the fund would lose 11.9% for 100 basis points increase in yields on bonds equivalent to those held by the fund.
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