Question about Bonds / F-fund

[Boghie]

Many bond funds (the 'F Fund' in our case) have been trading like stock funds. Internally, 'investors' are churning them for capital gains. About 2/3rds of the annual gain now comes from capital gains.

One question...

Is that why you invest in bonds?

 

[tsptalk]

Right. Yields go down BECAUSE bond prices go up.

 

[jason011235813]

Ok thanks. I was confused w the yield. So, to be clear, when yields, also like when the interest rate goes down, it is beneficial to bonds.

 

[tsptalk]

Welcome, Jason. Thanks for joining us!

The second part is, when the dollar eventually tops and rolls over, the I-fund will benefit, but the I-fund is struggling and the dollar is rising because of economic weakness overseas. The European economy will have to show improvement before either is likely to happen.

Regarding bonds, I think you answered your own question. The yields are lower because bond prices are rising. Here's how the yield is calculated...

Subtract the bond's purchase price from its face value. For example, if you had a bond that was purchased for $100 dollars and had a face value of $150, you would subtract $100 from $150 to get $50.

Divide the result by the face value of the bond. Continuing with our example from above, this would give us 50/150 or 0.33. For the purposes of this article we will call the result for this step the face value ratio.

Divide 360 (roughly the number of days in one year) by the numbers of days remaining until the treasury's maturity date. For example, if you had a bill that was set to mature in 91 days you would divide 360 by 91 to get 3.96 when you round up.

Multiply the result of the previous step by the face value ratio you calculated in Step 3. Using our example above, this would give us 3.96 x 0.33 or 1.31 when you round up once again.

Convert the answer to a percentage. To do this, you multiply the result of the previous step by 100. Using our example, this would give us 1.31 x 100 or a treasury bill yield of 131 percent.

Source: How to Calculate Treasury Yields | eHow

 

[jason011235813]

How do these low yields on treasuries affect bonds? I know that the F fund has been the place to be recently, along w when interest is down, bonds go up.
Im also wondering with the strength of the dollar floating up and down in addition to the oil drop could we see a small rally in the I fund (near Oct lows)?