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Subject:  Re: What be them day traders up to? Date:  1/26/2008  8:55 PM
Author:  AcmeFool Number:  22860 of 37007

This is how actively traded bond funds supposedly make their living. And while I'm skeptical about how you earn enough extra return to pay for your added expenses, I'm positive that market inefficiencies in the bond market exist, at least from time to time.

Certainly inefficiencies can exist in the bond market. But the pricing of a bond is still going to be based on market rates -- for both bonds in general and that specific issue. When the market rates rise, the value of the existing bonds will fall; when the market rates fall, the value of existing bonds will rise. That's simply a fact of bond pricing.

Just look at the performance of closed-end funds like GIM and TEI (which admittedly are global and have the foreign currency element to them). Up and down 5-10% in the matter of days? You can make (or lose) money no matter what rates do.

As you know, closed-end funds are a completely different beast. The number of shares is fixed and they often sell at a premium or a discount to the NAV of the underlying assets. This allows them to move around in ways that are not directly tied to interest rate movements.

For open-end funds, however, the NAV is always tied directly to the underlying assets.

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