RECENT NEWS
Bloomberg  14 min ago  Comment 
The European Central Bank’s unprecedented bond-buying plan crushed euro-area yields this week as investors jostled to get hold of government debt before the purchases begin in March.
Bloomberg  2 hrs ago  Comment 
2:04 Government bonds rallied around...
Bloomberg  2 hrs ago  Comment 
New York Times  11 hrs ago  Comment 
There was predictable criticism from German economists, but for the most part Mario Draghi was able to win support from Europe’s leaders for his stimulus plan.
Bloomberg  Jan 23  Comment 
Global Bonds Jump on ECB-Linked Scarcity Before Greece Votes Government bonds rallied around the world as investors bought sovereign debt on speculation the European Central...
The Hindu Business Line  Jan 23  Comment 
High yields on Indian government bonds help the currency
The Economist  Jan 23  Comment 
BUY on the rumour, sell on the fact. That old stockmarket saying didn't really apply this week, unless you count the euro. The European Central Bank was widely expected to start quantitative easing (QE) and it duly did so, but stockmarkets still...
Reuters  Jan 23  Comment 
U.S. stocks fell modestly on Friday, pressured by some disappointing results from major multinational companies, which offset optimism triggered by the European Central Bank's recent decision to buy bonds and boost euro zone growth.
Wall Street Journal  Jan 23  Comment 
European stocks and bonds soared and the euro dropped to a new 11-year low against the dollar a day after the European Central Bank launched an aggressive bond-buying program.




 
TOP CONTRIBUTORS

A bond is a type of debt. It's a loan from an investor to an institution, and in exchange the investor collects a predetermined interest rate. When a company needs capital to expand its business, it issues bonds to the public. Investors buy them with the understanding that they will collect the original principal plus interest when the bond matures at a set date. Federal, state, and municipal governments issue bonds for a similar purpose, to raise money for projects and public programs.


Types of Bonds

Bonds or Stocks?

Making the choice between stocks and bonds can be complex. In general, though, the key consideration is your own planning horizon.

Bonds are, in general, more predictable than stocks, and (on average and in general) give you lower returns. If you believe you'll need predictable access to money over, say, a 20-year period, you may be better off with bonds. For example, if you want to put aside a specific amount of money for a grandchild, expecting that money to be available for college in eighteen years, and not expecting to have other capital available. Insurance companies invest heavily in bonds for just this reason: it matches predictable liabilities (future insurance claims) against predictable cash flows (principal and interest).

Some bonds have tax advantages; for example, municipal bonds are typically exempt from state taxes in the state that issued them, as well as federal taxes. This can make them more attractive, though often you will find that the market has arbitraged away the difference, and that corporate (that is, taxable) bonds carry a higher gross yield -- and the same net yield after taxes. Although many investors invest in munis for just this reason -- they "don't like the taxman" -- they may not be making the optimum investment choice.

Bonds are not riskless, however. They carry credit risk ("will I get my money back?"), prepayment risk, liquidity risk and interest-rate risk. Many bonds give the bond issuer the right to repay the bond early -- which happens more often when rates are low, in other words, just when you don't want your money back. This is prepayment risk. Liquidity risk is the risk that you won't find a good price for your bond when you want to sell it -- because there are so many more bond issuers than stock issuers, and because bonds are not exchange-traded, there may not be a willing buyer. Interest-rate risk is the opposite of prepayment risk: when rates go up, the value of your bond will drop (it drops more, the further away it is from maturity). If your circumstances change and you need to sell the bond before maturity, you can lose capital that you would otherwise receive, if you held the bond to maturity.

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A how to on investing in bonds

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