Trying iShares 2028 Term Bond ETF ID28

 I bought a little of iShares 2028 Term Bond ETF (ID28) to try it out, having been reminded about it in the HWZ forums. I was aware of it previously but the prices were above face value because of low interest rates.

With the constant increase in interest rates and the 10yr US Treasury Yield touching 5%, there has been a rout in bond prices. 

If you were holding an individual bond and the price fell, if you held to maturity, you would technically not lose any money and would have collected the interest payments along the way. However, most bond ETFs do not hold to maturity, and they have to follow a preset rule and sell the bonds when they reach a certain maturity. For example, iShares LQD which is a 'medium term' bond ETF has to sell the bonds when they are 3 years to maturity to their short term bond ETF which holds bonds of 0-3 years maturity. Hence you will get hit by mark to market losses.

The iShares Term Bond ETF holds investment grade fixed income that matures in a certain year, after which all the bond redemption amounts are handed over and the ETF shuts down. So you can get the face value of the bonds back as long as you hold them to the ETF 'maturity' date.

 By implication, the purchase price is important. If the ETF price is higher than the redemption value per unit, you could end up getting less on maturity than what you invested (though you are supposed to be compensated by the interest payments of course). 

 But if you can buy the ETF at a lower price because of the bond market rout, then you are sort of guaranteed a higher amount on maturity as long as there are no defaults.  Furthermore, if interest rates drop, you might also be able to exit earlier by selling for capital gain. 

ID28 has a YTM of 6.09% and a maturity in December 2028 which does not seem like a fantastic interest rate compared to say Astrea 7 Class B which is returning 6.2%  (diversifying into Astrea 7B is something I would seriously consider as well except that Stanchart no longer allows investors to buy Astrea). However, ID28 is a bucket of more liquid bonds vs Astrea so it is more interest sensitive - any interest rate will probably lead to potential capital gain.

At the end of the day, its a small amount, more to 'test' and see how the ETF works.