Business

ESSENTIAL THINGS TO KNOW ABOUT BONDS

A bond is basically a loan that has a borrower following a defined structure to pay back what they owe with interest on a definite schedule. In general, bonds are considered to be among the safest investments you can make.

Bonds have different structures. 

There are various methods when structuring interest payments and the repayment of the principal. The most common one, though, features quarterly “coupon payments” for the interest with a full payment on the maturity date of the bond. 

Most do not buy bonds directly.

Bond trading is dominated by banks. For you to participate directly, you’re likely to hire a bond broker.
The much simpler option is to depend on mutual funds and exchange-traded funds that feature the so-called “bond funds,” which are portfolio of bonds that are chosen under a specific criteria or handpicked by a professional fund manager. These funds let you indirectly invest in the bond market. 

There are different types of bonds,

Bond markets are crucial in the global economy.  And the markets are complex. Here are some common bond types: 

US Treasury Bonds

The US borrows hundreds of billion per year. The debt they issue now plays a major role in the global money markets. 

There are 3 types of Treasury bonds, classified according to the length of their maturity:

  • Treasury bond, which mature in 20 to 30 years
  • Treasury notes, which mature in 1 to 10 years
  • Treasury bills, which mature anywhere from a month to a year

Saving Bonds

The US Treasury also provides savings bonds for individual investors. These are usually bought directly from the US Treasury. 


Savings bonds can be bought as small as $25 and pay interest until they’re cashed in, which can be anywhere from 1 to 30 years from the date of the purchase. They don’t offer coupon payments. Rather, they allow the interest to accumulate until it’s paid-out in full when the bond is cashed in.

Municipal Bonds

Municipal bonds come from the city or state governments for funding projects and covering shortfalls. 
Municipal bonds are free from federal taxes, so if you’re comparing different bonds to munis, it’s best to consider the tax benefits you may get from each. 

Corporate Bonds

Corporations will need to borrow funds for a wide variety of reasons. They will often do so by issuing bonds. Corporate bonds can include what are known as “convertible bonds,” which grant investors the choice to convert their bonds into a stock asset at a predefined ratio. 

Junk Bonds

Junk bonds are high-yield bonds from corporations or governments on relatively unsound financial status. Since there’s a real looming possibility that these companies default on some or all of their debt, they have to offer a much higher interest rates to appeal to investors. 

In general, bonds have lower risks inherent in them when compared to stocks. However, junk bonds offer a much higher risks than stocks. So you should think twice before investing in these kinds of bonds. 

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