Bond ETF question #2

yuriythebest

Junior member
19 3
Hello everyone! If I buy a bond ETF with an expiry date, when it reaches, do I:
1) get the etf's price as it is traded at that time?
2)get the "standard" price as when the etf first launched?
 

yuriythebest

Junior member
19 3
Thanks for the link! The relevant sentence is:

These ETFs track an index of bond issues that come due in the same calendar year. The funds liquidate on December 31 of the listed year, offering investors a payout equivalent to the bonds' face value.

Ok, and face value, after more googling, is:


Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the holder at maturity, which is customarily $1,000.

so, from these 2 pages what I got from it is: if for example a bond etf is issued at 1,000$, after which its price fluctuates, at the end (maturity date), you get the 1,000$ usd, no matter the trading price
 

new_trader

Legendary member
6,531 1,417
so, from these 2 pages what I got from it is: if for example a bond etf is issued at 1,000$, after which its price fluctuates, at the end (maturity date), you get the 1,000$ usd, no matter the trading price

The article contradicts itself, or, it has a typo.

In the 2nd point it says: "The funds liquidate on December 31 of the listed year, offering investors a payout equivalent to the bonds' face value. "
Then further down it says: "They allow investors to hold to maturity and rise out fluctuations in the yield curve, knowing that when the time comes, they can collect the full face value of the fund. "

"full
face value of the fund" seems more correct to me.
 

yuriythebest

Junior member
19 3
"full face value of the fund" seems more correct to me.

right, but "face value" specifically means the starting value (i.e. 1,000$)
Regardless of what the article attempts to say, has anyone here actually had hands on experience with this? How does it actually work? Is my understanding correct that:

"when the bond etf reaches maturity, regardless of what it's current trading price, you get the face value, i.e. the 1,000$"?
 

new_trader

Legendary member
6,531 1,417
right, but "face value" specifically means the starting value (i.e. 1,000$)
Regardless of what the article attempts to say, has anyone here actually had hands on experience with this? How does it actually work? Is my understanding correct that:

"when the bond etf reaches maturity, regardless of what it's current trading price, you get the face value, i.e. the 1,000$"?

Yes, I think your understanding is correct, but you really should read the ETF's Product Disclosure Statement (PDS) to find out exactly how it is constructed and what happens at maturity. You don't need to own an ETF to learn what happens with it, you should always...always(!) read the PDS first before investing in it.
 

yuriythebest

Junior member
19 3
Here's the thing : if after maturity the bond pays out the face value, let's say I got the bond for 1050$, does this mean after maturity I loose the 50$?
 

new_trader

Legendary member
6,531 1,417
Here's the thing : if after maturity the bond pays out the face value, let's say I got the bond for 1050$, does this mean after maturity I loose the 50$?

Yes. Anyone who holds a bond until maturity will receive the face value (or adjusted face value if it is an indexed bond) regardless of the market price paid.
 
 
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