Bond Fund ETFs

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Hello,
in my RRSP I have a couple bond funds that are not doing well. Vanguard US Aggregate Bond Index (VBU) and Vanguard Global ex-US Aggregate bond (VBG). I have held them for a few years. Currently they represent 10% of my RRSP balance. I bought them before rates started to rise. According to my November Questrade statement % returns are -11% and -%10 respectively. According to the Vanguard website, the 12 month yield is 2.32% & 1.26%. The soonest I will be retiring and need this money will be 4 years. I have been wondering if I should sell these funds and take the loss. Then reinvest the money in a money market or short term duration fund that would pay a better yield. My gut feeling is that rates have stalled and will lower in 2024. But that is only a guess. I guess my question is if / when interest rates rise will the unit value of bond funds increase or return.
I hope this makes sense.
Thanks

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Asked on December 17, 2023 7:18 am
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Private answer

Hey there.
Bond prices are inversely related to interest rates. What this means is that if you do believe that rates have stalled and will lower in 2024, that lowering of rates would bring positive price action to those bond funds.
I also do predict we have witnessed the last of rate increases and could see a decrease in late 2024 or 2025.
It's very important to understand that yield does not equal return. On a money market fund or HISA ETF, your return is your yield. However, with those bond funds, your return is price movement and yield.
If we witness rates go down in 2024/2025, you could see those bond funds rise in price and still pay you a yield while the money market/HISA funds will lose yield.

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Posted by Dan Kent
Answered on December 21, 2023 7:03 pm