An intermediate bond fund invests primarily in intermediate-term bonds. Intermediate-term bonds are bonds that come due for payment (mature) in usually two to 10 years from the date they were issued.
What is a bond
A bond is basically an IOU. It is an agreement that the bond issuer will pay the bond purchaser interest on the amount of the bond and the face value of the bond when it matures.
Investment Strategy
Bond funds invest primarily in bonds or other types of debt securities.
Types of Bond Funds
Types of bond funds include government bonds, municipal bonds, corporate bonds, convertible bonds, zero-coupon bonds and international bond funds. Government bonds funds contain securities that are backed by the U.S. government, and are therefore considered the safest of the bond funds.
Significance
Usually the interest rate on intermediate-term bonds is greater than the interest rate on short-term bonds of similar quality
Considerations
Intermediate-term bonds work well in a portfolio that consists of several bonds that have different maturity dates.
Risks
Risks associated with bond funds are credit and interest rate risks. A credit risk is when the issuer may default on the payments and an interest rate risk is that the interest rate will rise when the bond comes due, causing the market value of the bond to decline.
References
- Securities and Exchange Commission: Bond Funds and Income Funds
- Federal Reserve Bank of San Francisco. "What Makes Treasury Bill Rates Rise and Fall? What Effect Does the Economy Have on T-Bill Rates?" Accessed April 23, 2020.
- TreasuryDirect. "Treasury Notes In Depth." Accessed April 23, 2020.
- TreasuryDirect. "Treasury Inflation-Protected Securities (TIPS)." Accessed April 23, 2020.
- U.S. Securities and Exchange Commission. "Municipal Bonds." Accessed April 23, 2020.
- U.S. Securities and Exchange Commission. "Corporate Bonds." Accessed April 23, 2020.
- U.S. Securities and Exchange Commission. "What Are High-Yield Corporate Bonds?" Accessed April 23, 2020.
- California State Treasurer. "Bond Concepts and Overview," Page 8. Accessed April 23, 2020.
- TreasuryDirect. "TreasuryDirect." Accessed April 23, 2020.
- U.S Securities and Exchange Commission. "Bonds." Accessed April 23, 2020.
- PIMCO. "Everything You Need to Know About Bonds." Accessed April 23, 2020.
- The Vanguard Group. "What Is a Bond? A Way to Get Income & Stability." Accessed April 23, 2020.
- Ally Bank. "Bond Mutual Funds." Accessed April 23, 2020.
- U.S. Securities and Exchange Commission. "Risk and Return." Accessed April 23, 2020.
- Standard & Poor's Financial Services. "S&P Global Ratings Definitions." Accessed April 23, 2020.
- Fidelity. "Bond Ratings." Accessed April 28, 2020.
- U.S. Securities and Exchange Commission. "Investor Bulletin Interest Rate Risk—When Interest Rates Go up, Prices of Fixed-Rate Bonds Fall," Pages 1-3. Accessed April 23, 2020.
- BlackRock. "How to Invest in Bonds." Accessed April 23, 2020.
- Fidelity Investments. "What Is a Yield Curve?" Accessed April 23, 2020.
- Financial Industry Regulatory Authority. "Bonds and Interest Rates." Accessed April 23, 2020.
- Rocket Mortgage. "How Bonds Affect Mortgage Rates." Accessed April 23, 2020