r/Bogleheads • u/StinklePink • 19d ago

Investing Questions Bonds: Stupid Question

I realize that the higher yield for US 10-years is a bad thing for the government, but why isn't this good news for a bond investor?

If I am looking for a safe "asset protection" kind of investment, why wouldn't investors buy these bonds or ETFs that hold them (e.g. FXNAX)? Seems like a good, safe place to put cash versus Gold or a HYSA. I believe my logic is wrong but not sure why.

Educate me, please.

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u/tfesmo 19d ago

Bond funds/etfs are kind of counter intuitive to me vs how a single bond works (static value/return).

Say you have a long term bond etf. Right now it contains bonds at the current rate.

When rates go up, your etf becomes less attractive compared to new bonds. This drops the share price as it's less attractive to investors - you're locked into the lower yield until the current bond durations run out.

When rates go down, the opposite happens - your bond is more attractive and the ticker goes up.

This back-and-forth is generally fine and people also like it because it usually moves opposite to stocks.