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I'm trying to compare a few (BlackRock) bond ETFs using the following info:

  • Weighted Avg Coupon
  • Effective Duration
  • Weighted Average Yield to Maturity
  • Weighted Average Maturity

For example: https://www.blackrock.com/lu/individual/products/287339/ishares-us-aggregate-bond-ucits-etf:

  • Weighted Avg Coupon: 2.89 - This is the original interest rate (%) for bonds (weighted and averaged for all fund holdings)?
  • Effective Duration: 6.38 - I don't understand what this would represent?
  • Weighted Average Yield to Maturity: 4.79% - I also don't understand this one?
  • Weighted Average Maturity: 8.67 - This is the bond maturity in years (weighted and averaged for all fund holdings).

Can someone help with understanding Effective Duration and Yield to Maturity? What do the numbers mean, what to read from them?

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    Does this answer your question? Yield to maturity (YTM) for a bond - definition
    – 0xFEE1DEAD
    Commented Feb 17, 2023 at 14:44
  • Not sure still... If the coupon is 2.89, how can the yield be so high: 4.79%? Is it expected usually?
    – Danijel
    Commented Feb 17, 2023 at 15:16
  • @Danijel coupon is calculated relative to bond's par value; yield is computed relative to its price, which will usually be different.
    – Nobody
    Commented Feb 17, 2023 at 16:05
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    @Danijel If you pay 90 cents on the dollar for a bond that pays a 2.89% coupon (the coupon is calculated on the face value, not what you paid for it) your yield will be higher than 2.89%
    – D Stanley
    Commented Feb 17, 2023 at 16:35
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    Yield (to maturity) is explained here for example. You will generally need a root solver to compute it. It may be worth to familiarize yourself with single bonds first before asking about ETFs (weighting schemes).
    – AKdemy
    Commented Feb 17, 2023 at 19:05

2 Answers 2

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Here are a few definitions that might help.

  • coupon rate: The "coupons" are the periodic interest payments the bond issuer makes to the bond holder. The name comes from the old days when bonds were actual pieces of paper, and they had attached coupons that you would tear off and redeem on the printed date to receive your interest payments. The coupon rate is calculated relative to the par value (i.e., face value) of the bond.

  • maturity When the bond "matures" the principal will be repaid, and the interest payments will stop. A bond's "time to maturity" (or "term to maturity" along with many other slight variations) is the length of time remaining before this happens. The "weighted average" part refers to the fact that the ETF holds a lot of bonds with different maturities, and they average them to get a single number for the fund as a whole.

  • duration: This is a measure of the bond price's sensitivity to prevailing interest rates. It's measured in years because generally bonds with a longer maturity are more affected by changes in interest rates, but the duration is not generally exactly equal to the maturity. According to this explainer on bond duration:

As a general rule, for every 1% increase or decrease in interest rates, a bond's price will change approximately 1% in the opposite direction for every year of duration.

  • yield to maturity: If you hold a bond to maturity (assuming it doesn't default), you will get all of the interest payments between now and the maturity date, plus the repayment of the bond's principal at the maturity date. The yield to maturity (YTM) is a the yield (i.e., rate of return) of those future payments given the price of the bond now. Since the price of the bond will fluctuate with market conditions, so will the YTM. Contrast this with the coupon rate, which is usually fixed. Here, again, the value has been averaged over all the bonds held by the fund to get a single number.

Hope that helps.

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Concepts like effective duration (sensitivity to interest rate changes) and YTM (return you receive) aren't specific to ETFs but are general bond concepts.

To learn more, start with the search engine of your choice or take a look at the existing questions on this site.

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