What happens if a bond defaults that is in a high yielding corporate bond fund? - Fund Eye, Fund, Funds, Investment, Funding, Funds Of Funds, Mutual Funds, Fund Of Fund, Mutual Fund

If I buy a high yielding corporate bond fund and one of the bonds in that fund defaults what will that do? Lower the underlying fund price? Do anything to the interest rate? Thanks.

idiotfepe

The bond fund NAV drops by whatever the value of the bond that defaulted drops (usually bond defaults don't happen out of thin air so the bond is unlikely to be selling for 100 and drop to 30 or something). As the bond stops paying interest, the yield on the fund drops.

NoillialmDali

With a mutual fund, sometime you won't even notice it....
The average default in one fund was 1.6%, so you still make money, but just a little less.

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	#1 (permalink)
dustyhreenlee Guest Posts: n/a	What happens if a bond defaults that is in a high yielding corporate bond fund? If I buy a high yielding corporate bond fund and one of the bonds in that fund defaults what will that do? Lower the underlying fund price? Do anything to the interest rate? Thanks.

	#2 (permalink)
idiotfepe Member Join Date: Jan 2013 Posts: 72	What happens if a bond defaults that is in a high yielding corporate bond fund? The bond fund NAV drops by whatever the value of the bond that defaulted drops (usually bond defaults don't happen out of thin air so the bond is unlikely to be selling for 100 and drop to 30 or something). As the bond stops paying interest, the yield on the fund drops.

	#3 (permalink)
NoillialmDali Senior Member Join Date: Jun 2011 Posts: 337	What happens if a bond defaults that is in a high yielding corporate bond fund? With a mutual fund, sometime you won't even notice it.... The average default in one fund was 1.6%, so you still make money, but just a little less.