# Bond fund yield explained

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## What is a bond fund yield?

A bond fund yield is the percentage of the fund’s total assets that are paid out in dividends each year. This number can be static, meaning it never changes, or it can fluctuate depending on the market conditions.

In order to calculate a bond fund yield, you need to know two things: the total amount of assets in the fund, and the total amount of dividends paid out by the fund over a certain period of time.

The formula for calculating bond fund yield is:

Bond Fund Yield = (Total Dividends Paid Out / Total Assets) x 100

For example, let’s say a bond fund has \$1,000 in assets and pays out \$50 in dividends each year. The bond fund yield would be calculated as follows:

Bond Fund Yield = (\$50 / \$1,000) x 100 = 5%

## How is a bond fund yield calculated?

To calculate a bond fund’s yield, we use the Fund Yield calculation. This calculation is a measure of the income the fund generates through interest payments from the bonds it holds, minus the fund’s expenses. The calculation includes all types of income received by the fund, including short-term and long-term capital gains.

To give you an idea of how this works, let’s say a bond fund has an expense ratio of 0.5% and generated \$10 million in interest and capital gains over the course of a year. We would subtract \$10 million by \$5 million (0.5% of \$10 million), which equals \$5 million. This \$5 million is then divided by the number of shares outstanding, which lets us know the yield per share. In this example, if there are 1 million shares outstanding, each share would have a yield of 5%. ## What factors affect bond fund yield?

There are three primary factors that affect the yield of a bond fund: credit quality, duration and maturity.

Credit quality is a measure of the creditworthiness of the bonds in the fund. Funds that invest in higher quality bonds will typically have a lower yield than those that invest in lower quality bonds.

Duration is a measure of a bond fund’s sensitivity to changes in interest rates. Funds with a longer duration will typically have a higher yield than those with a shorter duration.

Maturity is the length of time until a bond matures and pays back its principal. Funds that invest in bonds with longer maturities will typically have a higher yield than those that invest in bonds with shorter maturities.

See related articles on sec standardized yield explained here, or this article regarding bond mutual funds.