Skip to main content
No. of Recommendations: 0
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.

Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.