Another bond/rising interest rate question

[starguru]

When interest rates rise (whenever that happens), will funds/ETFs like BND increase their dividend payouts? 

[Aphalite]

Gradually, as they buy up new bonds with higher interest rates

What will initially happen is the price of the ETF will decrease while payout stays the same, then as newer, higher interest paying bonds are obtained in the portfolio, the weighted average payout rate will increase

[forummm]

The yield will go up very quickly (a small amount, but quickly). But that's because the price of a share will go down very quickly (a small amount of decline, but it will be quick). So the dollar amount of dividend per share will be about the same, but the dividend as a percentage of share price will rise. This will happen each time rates are raised. It will also go up an additional amount more slowly as well for the reasons Aphalite mentions.