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Questions tagged [bonds]

Use this tag for questions that relate to debt instruments known as bonds. Generally, money is lent to governments or corporations that is paid back with interest.

57
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10answers
13k views

Why don't bond makers just get loans?

I was just looking at investment opportunities, and I found a number of places offering bonds paying up to 12% interest over two years. My first thought was, I can get a loan from my bank for 5% ...
40
votes
10answers
17k views

Why would anyone buy U.S. Treasury Bills?

From the Treasury Direct website, I saw this Bills: U.S. Treasury Bills are a type of short-term security of one year or less, usually issued at a discount. The discount is the amount the security ...
39
votes
16answers
19k views

Why would I ever put my money into a savings account that returns less than the current inflation rate?

I like a safe investment as much as the next guy. But can anyone give me a good argument on why I should invest in a bond or a savings account that returns less than inflation? It seems to me that I ...
33
votes
4answers
6k views

Opportunity to buy Illinois bonds that can never default?

Today Illinois bonds were downgraded to 1 above junk. The article. Citation from article: Despite the lack of a budget, Illinois has continued to cover payments due on its bonds, and, like other ...
25
votes
9answers
6k views

What does one typically use as a money reservoir for stocks, when they are “on sale”?

I've read about people who claim to have made a lot of money investing in stocks (or funds) after a crash. They say the stocks were "on sale". But I wonder, where did they get the money to buy these ...
23
votes
4answers
5k views

Why would I not buy a bond for less than face value?

The way I understand it is that if you own a bond at maturity you will get the face value of the bond at that time. So if you can purchase a bond at $80 which has a face value of $100 why would I ...
23
votes
5answers
6k views

Why invest in long term government bonds when the yield curve is inverting?

The New York Times has noted that the US is heading toward an inverted yield curve, which is one of the precursors for a recession. The yield curve is said to be inverted when long term government ...
22
votes
3answers
9k views

Bought agency bond (FANNIE MAE 0% 04/08/2027), now what?

I just bought 15 of these for $10,677 through my brokerage firm. It says 3.3% interest. I have no idea how this works. But I trust it is gov bond and will pay 3.3%. Can anyone explain how it works? ...
19
votes
2answers
2k views

How would bonds fare if interest rates rose?

The first thing I learned about bonds is that when interest rates rise, the price of existing bonds tends to fall. Unfortunately, I didn't learn much else about bonds. So I have a couple questions ...
18
votes
5answers
9k views

What is a good asset allocation for a 25 year old?

I have a mid-sized portfolio (under $100K). And am currently in 100% stocks. I have seen some advice being given that states 80/20 bonds will yield similar returns as 100% stocks with less volatility.
18
votes
2answers
2k views

What is the best way to invest short term without losing principal?

My wife and I were planning to buy a house this year, but the plan fell through, so right now we are sitting on the money that we saved towards down payment and renovations (prior to now money was in ...
17
votes
3answers
3k views

How do you short US Treasuries?

As the US government continues to issue record levels of debt, I don't think it can continue to sell that debt at 2 - 3% interest. It will face the simple supply/demand law of economics - the more ...
15
votes
1answer
12k views

What are some examples of “fixed income” investments?

I'm using an online tool that my broker provides for balancing my portfolio according to my investor profile and it breaks down the suggested allocation into the following categories: Large Cap ...
15
votes
4answers
18k views

How do currency markets work? What factors are behind why currencies go up or down?

How do currency markets work? What factors are behind why currencies go up or down? What roles do governments, central banks, institutions, and traders have in the process?
14
votes
7answers
7k views

Are bonds really a recession proof investment?

I believe that another crisis is imminent if Trump goes ahead with deregulation of financial firms. Whether that is true or not is not my actual question. In that context, I want to protect my 401K ...
14
votes
5answers
567 views

Why would a company with a bad balance sheet be paying dividends?

As an example, Ford Motors recently reinstated its dividend. It still has a lot of debt and a high debt-equity ratio. Its bonds are still rated as junk. Why would a company like this spend its cash ...
13
votes
3answers
2k views

What is the difference between a stock and a bond?

I am just learning about finances (only 14 years old) and have heard about Stocks and Bonds and I would like to know the difference between these two things and wonder why would I invest in one or the ...
13
votes
2answers
4k views

Why don't companies buy back their own (cut-price) debt?

A thought occurred to me today. Glencore's debt is trading at about 70% of face-value. If you're Glencore, what's to stop you buying that debt yourself and pocketing the difference? In particular, ...
12
votes
1answer
3k views

200%+ return in 10 years from…bonds?

I read an article this morning about a million dollar bet Warren Buffett made with a hedge fund that would take 10 years to determine the outcome. They didn't each put down a million dollars, rather, ...
12
votes
3answers
382 views

Why did one-year notes pay more than 10-year notes during the 1980's crisis?

Why did one-year notes pay more than 10-year notes during the 1980's crisis? During the early 1980's, one-year T notes paid more than the 10-year T note, which implies that nobody wanted to buy the ...
11
votes
5answers
11k views

If I buy bonds near the maturity date, is it a short term zero risk investment?

Right now I'm studying how bonds work and from what I have studied, the crucial thing about bonds is the maturity date, where you are assured you'll get the principal if you sell at that time, and the ...
11
votes
3answers
2k views

Should I exclude bonds from our retirement investment portfolio if our time horizon is still long enough?

My wife and I (ages 35 and 38) have 25-30 years until we reach retirement age, and I'm doing some research regarding our asset allocation. In addition to various podcasts, articles, and online posts, ...
11
votes
5answers
308 views

What to sell when your financial needs change, stocks or bonds?

Say I have a portfolio composed of 80% index funds, and 20% bonds. This portfolio was created under the assumption I would have a relatively large income, and wouldn't need to withdraw any funds for a ...
11
votes
2answers
555 views

Has anyone found U.S. Savings Bonds to be effective investing?

Since I was a small child, my grandparents have given all of their grandchildren savings bonds on our birthdays. I'm not sure if it makes a difference, but they are always "EE" series. I had to use ...
10
votes
5answers
806 views

Are long-term bonds risky assets?

I think bonds are debt/loan and fixed-income, so they are risk-free, both short term and long term. But it seems like Bodie's Investment thinks long-term bonds are risky: For example, assume that ...
10
votes
3answers
3k views

What happens to Bonds if a company is bought out by a private equity firm?

If you have Corporate Bonds in a company and that company is bought out, by a Private Equity Firm. What happens to the bonds that were issued? Is the new Private Equity Firm responsible for that debt?
10
votes
5answers
14k views

Why do 10 year Treasury bond yields affect mortgage interest rates?

Why is it that when the yield on a Treasury bond increases (because people are selling their bonds, I believe), mortgage rates increase as well? Is there any sort of inherent connection between them? ...
10
votes
3answers
281 views

What is a bond fund?

This answer suggested to invest in a Bond Fund and stated that it has been working well for that person. What is a bond fund? What are it's pros and cons?
9
votes
3answers
552 views

Should I buy individual bonds for my retirement portfolio, or stick to funds/ETFs?

To avoid the fees on bond mutual funds or exchange traded funds I have been thinking of buying actual bonds inside of my retirement portfolio. Does that make sense or are there drawbacks to consider?
9
votes
3answers
377 views

What is a “Junk Bond”?

I was reading Barbarians at the Gate and I read that junk bonds were required to do large leveraged buyouts. What is a junk bond and how does it differ from a regular bond? Why is there higher risk/...
9
votes
1answer
561 views

What happens to the bond ETF when the underlying bond matures

When a bond matures, what happens to the corresponding bond ETF? It still keeps on going as if nothing has happened. How does this work? I guess there is some kind of rolling over happening here, but ...
9
votes
1answer
694 views

What is a Samurai bond?

I saw this term "Samurai Bond" while I was reading about investing and bonds, but I am not sure about what this is. Can you please explain?
9
votes
1answer
796 views

How much in inflation protected securities (TIPS) should I buy?

I'm wondering whether it's worthwhile to allocate some of my bond portfolio in the Vanguard TIPS fund. I plan to work until about 2040, and I prefer (efficient) risk over return. I plan to buy and ...
8
votes
3answers
952 views

Long Term Cash-Equivalent ETFs for “cash” allocation

My retirement account goal analyzer advises that I keep 3% in cash. My retirement date is over 30 years from now, so I can tolerate heavy volatility and certainly don't need liquidity. Does it make ...
8
votes
1answer
1k views

Bond gain is greater than remaining coupon payments. Time to sell?

I wanted to learn about bonds so I bought a rather risky one (Chesapeake Ene Corp SR NT 6.62% 08/15/2020 / 165167CF2). Since purchase, the price of the bond has risen 72.81% for a gain of $257.02 as ...
8
votes
3answers
3k views

Why does interest rate go up when bond price goes down?

Why does interest rate go up when bond price goes down? Thank you very much!
8
votes
1answer
264 views

Savings account versus corporate bond

I am looking at buying a bank corporate bond instead of placing money into a savings account. Say I buy a 2 year maturity corporate bond, that yields exactly 2% per year (in terms of yield to ...
8
votes
3answers
2k views

Is there a widely recognized bond index?

S&P 500 is a widely recognized stock index, that many people benchmark performance against, and you can find 'passive management' funds that compete to replicate it at as low a fee as possible. ...
8
votes
3answers
291 views

Is there anything wrong with having a portfolio consisting of a single fund?

Aside from cash reserves, the entire portfolio is in a Vanguard mutual fund that has a good split between domestic stocks and bonds. The split is at the target ratio the investor is looking for. Is ...
8
votes
2answers
385 views

How should I be investing in bonds as part of a diversified portfolio?

I often hear that I should diversify my investment portfolio with X% stocks and Y% bonds, ostensibly to mitigate the risk. My question is what exactly this guidance means in terms of HOW to invest ...
8
votes
1answer
276 views

Investments: Feds buying more treasury bonds? How does it affect Bonds (going up or down)?

I have set up a 401(k) and I have bonds. When the Federal Reserve buys more treasuries (today's news) what's the effect on bonds? Should I sell my bonds or buy more?
8
votes
2answers
1k views

Effect of a “Bond Bubble” Bursting?

Lately I've heard increasing talk that the next big bubble that will burst in the US is the "Bond Bubble". Consider this recent Wall Street Journal article. Excerpt: But in the same investment ...
8
votes
1answer
2k views

Yield of a municipal bond with a sinking fund?

How do I calculate my expected return if I buy a municipal bond at a premium with a sinking fund feature? For example, I'm looking at a bond with a coupon of 5.5%, maturing July 2015, with the ...
7
votes
5answers
2k views

Roth IRA = Emergency Fund. Any Safe Investments?

I've been building my emergency fund through automatic deposits into a Roth IRA at TDAmeritrade. This has been working well, since the money is out of sight, out of mind, and I can easily withdraw it ...
7
votes
4answers
1k views

Are bonds worth the investment since they don't compound?

I was talking with my parents and they told me they have been buying 30 year EE bonds at $100 every 2 months with an interest rate of 4%. Because it is an EE bond, it does not pay a monthly coupon. So ...
7
votes
3answers
2k views

Where to find out conversion ratio between General Motors bonds and new GM stock?

I bought some General Motors bonds (ETF-traded under "XGM" symbol) when they were at depressed prices, before GM declared bankruptcy. GM is supposed to be having an IPO sometime in November, and ...
7
votes
2answers
591 views

Looking for suggestions for relatively safe instruments if another crash were to happen

My current investment strategy involves having 20% as liquid cash, 30% as bonds (aggregate bond fund), and 50% as a mix of domestic and international equity. The stock portion is invested via index ...
7
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2answers
2k views

What does S mean in a bond name?

Recently i read many bonds names such as Elevated Railroad First 5s, United Drug Company 7s, etc. What does 5s or 7s mean?
7
votes
1answer
683 views

Thorough Description of Yield to Maturity?

After some studies for the last month, I have encountered a concept that has just completely eluded me, and that is Yield to Maturity (YTM). Can someone explain the purpose and reasoning behind this ...
7
votes
2answers
256 views

Bond prices: Why is a high yield sometimes too good to be true?

Thank you for taking the time to explain me this. I'm looking at bonds prices at Yahoo Finance (see attached image) And it seems to good to be true: A-rated bonds at YTM rates of 11% and more. What ...