UNDERSTANDING BOND FUND YIELDS

What's a 30-day SEC yield? A trailing 12-month yield? A yield to maturity? We explain what each measure says about an income fund.

- NELLIE S. HUANG

NOW that bonds offer decent yields, investors have been barreling into fixed income mutual and exchange-traded funds. Taxable bond funds and ETFs pulled in net inflows (the sum of money deposited minus money that's withdrawn) of $143 billion over the first three months of 2024, a near-record.

But the array of bond fund yields can be confusing for investors trying to add a fund to their portfolio. In late March, for instance, the Schwab 1-5 Year Corporate Bond ETF (symbol SCHJ) boasted a 30-day SEC yield of 5.11%, a trailing 12-month or distribution yield of 3.16%, and a 5.28% yield to maturity. "If you look at all three, they can help create an overall picture of a bond fund," says D.J. Tierney, a senior investment portfolio strategist at Charles Schwab Asset Management.

Note that a bond fund's yield is just one piece of the puzzle when you're considering an investment in the fund. Investors should also understand the fund's investment objective, fees and expenses, overall credit quality, potential risk of default on debt, and sensitivity to interest rates.

And be careful about confusing yield with income, says Tierney. Income is the coupon rate a bond paysit's the annual interest paid on a bond, and it is generally fixed throughout a bond's life span. A bond's yield, on the other hand, can be an indicator of the return an investor may receive each year over the life of a bond held to maturity, relative to the price of the bond. (Bond prices and yields move in opposite directions.)