Assuming I buy an ETF of American bonds and never sell it, does the volatility of the ETF's price affect me ?

 

If you buy an ETF that tracks American bonds and plan to never sell it, the volatility of the ETF’s price will not directly affect you, but there are indirect factors to consider:

1. Price Volatility and Your Investment Value

• The ETF’s price fluctuates based on the underlying bonds’ market value. While you're holding the ETF, these fluctuations won’t affect your income or principal return, as long as you don’t sell. Bonds in the ETF pay fixed interest (coupons), and as long as the issuer doesn't default, you will continue to receive those payments. If the ETF’s price drops, it is merely a temporary market condition unless you choose to sell.
• Key point: Volatility only matters when you sell the ETF; otherwise, your return is based on the income generated from the bonds themselves, not the price fluctuations​
  
  

2. Interest Rates and Bond Prices

• Bond prices are inversely related to interest rates. When interest rates rise, bond prices typically fall, which impacts the value of the ETF. Even if you don't plan to sell, a prolonged period of rising rates can reduce the value of your investment relative to its market price. However, this does not affect your coupon payments unless the issuer defaults.
• Impact of interest rates: Rising rates may mean lower prices for existing bonds, but they also provide higher yields for newly issued bonds, which might increase the income from your ETF over time​
  .

3. Inflation and Real Returns

• Even though you’re not selling, inflation can affect the real return on your bonds. If inflation rises significantly, the fixed interest payments you receive may not keep pace with rising costs. This won't change the nominal amount of interest you receive, but it will reduce its purchasing power.
• Inflation’s effect: If inflation is high, the fixed payments from bonds (and therefore the ETF’s income) may feel less valuable in real terms​
  .

4. Market Liquidity and ETF Pricing

• Even if you never plan to sell, the liquidity of the ETF can impact its bid/ask spread and the price you could theoretically sell it at, should your circumstances change. If the bond market becomes less liquid or if there are extreme market conditions, the price may swing more wildly, although this wouldn't impact you if you hold through the volatility.
• Liquidity risk: ETFs with low trading volumes or small assets under management may experience larger price fluctuations, but this generally only matters if you sell​
  .

Conclusion

Volatility in the price of the ETF itself does not directly affect your returns as long as you do not sell the ETF. Your returns will primarily be driven by the bond yields and the ability of the bond issuers to make interest payments. However, indirect factors like interest rate changes, inflation, and liquidity can still influence your total returns over the long term.