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Author: Crosenfield Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35361  
Subject: Re: Declining NAV of Bond funds Date: 11/24/2001 9:42 AM
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The monthly dividend of bond funds changes when the fund buys
new bonds. If it bought new bonds now, it would get a better yield
than if it bought them a couple weeks ago.
It would get new bonds if the manager had money, either because new people moved in with money to buy shares, or if existing bonds matured
or were called. If existing bonds were called, they may have been paying higher interest than the new ones to be bought. Companies call bonds and refinance because interest rates have gone down and they can save some money. That doesn't help bond mutual funds particularly--their high-yielding bonds get called leaving them with less income with which to pay shareholders.
If a bond fund has cash because existing bonds matured, again you don't know what the coupon rate was on the maturing bond.
When interest rates rise,the NAV of bond funds goes down, but you
can't really say anything about the dividend rate. I quit buying bond funds when I noticed the dividend rate seemed only to go down, never up!
Best wishes, Chris
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