Struggling to understand market bond funds - what would it take to raise their value

[wendy1990]

I am struggling to understand bonds. I have this one in my managed portfolio BlackRock Overseas

Government Bond Index Fund, Price £1.18, current yield 1.22%, yield 1.93% nominal average life 8.43yrs. https://www.trustnet.com/factsheets/o/g6ie/ishares-overseas-government-bond-index-uk-d-acc

If there is an equity crash, generally bonds go up in value. But if I was shopping for bonds, I would go for short-dated 5% yield bonds. And whilst there are better bonds on the market, the value of this one BlackRock Overseas Government Bond Index Fund will not really rise. So the only way to increase its value is for inflation to plummet in order to dry up the supply of high yield bonds.

So for this one bond fund, would it take both an equity crash and almost zero BOE rates for it to increase in value, a market crash on its own would not be enough? And a slight market dip, e.g mild recession, certainly not enough?

Is my understanding correct on this? If not, why?

 

[uriel_1]

@wendy1990 Cuts in prevailing interest rates (and here in the US) are the predominant factor on pricing usually.

 

[wendy1990]

@uriel_1 Thank you, that makes sense.!thanks

 

[miyuki256]

@wendy1990 This is more of an investing question than personal finance.

Bonds values goes up when interest rates go down
- this involves risk free rates (macro risk)
- credit risk (company probability of default and loss given default)
- country risk premium if not US/Germany/UK

AND/OR

in the event they are valued below par, they will slowly accrue to par on their way to maturity

All of the above assumes the borrower doesn’t default

 

[wendy1990]

@miyuki256 Thank you. I mostly understand bonds in general. It is the interplay of the different bonds available at a given time, and what it would take for a low-yield bond fund to increase in value, whilst there are better offerings on the market. It seems that a crash in equity would make bonds as a whole more appealing, however for a specific low yield bond, that would really need interest rates to fall.

 

[trr]

@wendy1990 Watch this video from Pensioncraft. He's very good at explaining investment matters.

 

[wendy1990]

@trr Thank you, I did watch that one and starred following pensioncraft and it is a good explanation into bonds generally.