Bond Markets

While many investors are familiar with share investing, they might be less so with the bond market. A bond is a loan, where the bond issuer borrows money from the bond buyer.

To make it simple, bonds are usually set at a fixed amount of capital, with a set number of interest repayments over the life of the bond.

Consider a 10-year Treasury bond with a $100,000 face value, and a coupon rate (interest rate) of 3%.

Buying a bond

For buying this bond, an investor receives 3% ($3,000) every year, split over two payments, until the bond matures in 10 years. At maturity, the bond issuer (the government) needs to repay the face value — $100,000 in this example.

Because of their regular and reliable income flows, bonds are a popular investment product for income-focused investors. And because it’s usually governments and large corporations who issue bonds, they are often seen as safer than investing directly in shares.

But that doesn’t mean investing in bonds is without its risks. What would happen if you bought a bond with a fixed interest of 3% (for the life of the bond), and interest rates went to 5%? You’d rather own the bond paying a higher amount of interest (5%).

Bond Price

Although the interest payments of a bond are set, it doesn’t mean that the bond will hold its value. As interest rates go up, the value of a fixed-rate bond goes down — and vice versa.

Because investors could get a higher return with bonds issued at the higher rate, they’ll want to offload the lower income-producing bond. But the only way another investor would buy a bond with a lower rate is if they can buy it at a discount to its face value.

Unless they have large sums to invest, it’s unlikely that a retail investor will buy a bond directly.

However, there are several exchange traded funds (ETFs) that give you exposure to a range of different bonds. And because they’re listed on the ASX, you can adjust the size of your investment according to your needs, and enter and exit as you please.

If you think bonds might be of interest to you, please keep an eye on this page. We’ll post articles on how the bond market works, and show you how they can be a useful investment tool.

stocks
China Could Wreak Havoc on Stocks Everywhere
It’s still not clear if China will start selling US bonds. In fact, it could be that China can’t help but buy more US bonds. So what can you do if the second largest US bond holder goes haywire? Reduce losses as much as possible. It’s probably one of, if not the most important rules when investing.
market volatility
Why Market Volatility Will Continue to Rear Its Head
If you follow the trail, it would seem that the share market rout this past week stems from one piece of data. The market took last week’s wage growth data as evidence that things might finally be turning around. An increase in their paycheques means that consumers can spend more, putting more money into the economy. However, it also has other ramifications.
bonds and panic over US markets
Bond Panic Spreads
The feds are already on schedule to issue $1.3 trillion of bonds in just nine months. But who will buy them? Not the Fed: It is expected to continue its ‘quantitative tightening’ (letting the bonds on its balance sheet shrink, not buying more)…at least until the ladder falls over.
bond markets are important for investors to watch
Why Stock Investors Need to Watch Bond Markets
One asset class that many investors are less familiar with is bonds. They are something that you are unlikely to see quoted anywhere — often not even in a finance report. The thing about bonds is that they matter a great deal to the stock market. And much of that has to do with the size of this asset class.
bond markets are important for investors to watch
Bonds Are Flashing a Red Alert
Stocks are hitting record highs. But as the stock market continues to punch holes in its ceiling, bond prices are taking the down elevator. And bond yields — along with borrowing costs throughout the economy — are going up.
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The Thing That Could Really Bring This Market to an End
As revellers sip champagne and take in the fireworks, there will be one group of people for whom the end of the year won’t come soon enough. While everyone else is reflecting on the year gone by — and making plans for the next — this group will be ruminating on the decade gone by.
bond markets are important for investors to watch
A Long Bear Market in Bonds Is Coming
All investors today have known — at least, most of those who are under 70 years old — is rising bond prices and falling yields. Investors haven’t noticed yet, but the water is already rushing onto their feet. Bond yields are going up; prices are going down. And it’s still better to sell at a top than a bottom. Sell stocks and bonds. Buy gold…and maybe, just for fun…a little bitcoin.
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Why We Shouldn’t Let the Passive Investing Rise
Passive investing is when you simply buy an index fund or exchanged traded funds. The fees are lower and this strategy tends to outperform many active managers. And because the market has been on such a hot streak recently, many active managers have been left in the dust. 
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Don’t Get Caught Chasing Yield
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Are Bonds in a Bubble?
Of course, you could simply hold on until maturity, and see whether there’s a decline in bond prices. But for the immediate future, it looks as if the best returns remain in the stock market.