Investors have too much to think about. Where are interest rates headed? Will the stock market rise or fall? Can investing in mutual funds save money and free up time? And, that eternal nagging question: Where to invest?
Unlike the stock market, there's no central exchange for trading bonds. Nevertheless, the process is almost as easy as trading equities (stocks).
Research on bonds fills volumes. Or these days, the hard drives of web servers. Nowhere else in the investing world can the interested investor get more helpful information than that available from the various bond rating agencies.
Ah, if only the world would stand still - just for a little while. But, in the world of investing (as elsewhere) it's never so.
Bonds aren't the easiest instrument to understand or trade. They have more predictable characteristics — owing to their fixed maturity (principal repayment date) and coupon (interest rate). But those predictions are fairly technical and sometimes even difficult to follow for the beginner.
Few investors trade in order to lose money. For those seeking to make a profit, comparing the potential returns over different time spans of different instruments is essential. In that effort, calculating yield is central.
Corporate or Government. AAA or Junk. Subordinated or unsubordinated. 30 year or 3 month. The list goes on.
When even the Iranian government floats Euro bonds, you know there's something funny about the term.
Ask (Asked Price) The lowest round-lot price a broker will offer to sell a security. Auction The issuance of new Treasury bills, notes and bonds at stated intervals by the Federal Reserve Bank of the U.S.
Every bond carries some risk that the issuer will default on repayment of the principal or suspend interest payments.