124
votes
Accepted
Bought agency bond (FANNIE MAE 0% 04/08/2027), now what?
Neither. What you appear to have purchased is a zero coupon bond. In under 10 1/2 years, your $10,677 will grow to $15,000. This is a compound 3.3% per year. To be clear, the return comes from the ...
104
votes
Accepted
Why would anyone buy U.S. Treasury Bills?
No, what it says is “In half a year, we’ll give whoever holds this bond $10,000 for which you pay us $9,750 now”.
This is equivalent to an annual interest rate of about 5% (the example is showing a ...
- 3,230
67
votes
Can an American birth certificate be redeemed for money?
Why is an American birth certificate on bond paper?
Because it is an important document which needs to survive for a whole human lifetime. So it gets printed on paper which is thicker and of a ...
- 24.1k
66
votes
Why don't bond makers just get loans?
They are not necessarily a scam, or even likely to be. There is a reason they didn't just borrow the money at 5% though and this is virtually certain to be because they are higher risk.
There was a ...
- 1,069
62
votes
Accepted
Opportunity to buy Illinois bonds that can never default?
"Can't declare bankruptcy" isn't the same as "can't default". Bankruptcy is a specific legal process for discharging or restructuring debts. If Illinois can't declare bankruptcy, that means it will ...
- 7,011
62
votes
Why would I ever put my money into a savings account that returns less than the current inflation rate?
Why? Because the two are unrelated. "Inflation rate" is calculated by measuring changes in the consumer price index (CPI). Your personal consumption may not match the CPI and the inflation you ...
- 78.5k
41
votes
Bought agency bond (FANNIE MAE 0% 04/08/2027), now what?
Since it sounds like you are just starting out in bonds, let me first tell you a little about how bonds work before moving on to answering your actual question.
Whereas stocks represent a portion of ...
- 4,609
38
votes
Can an American birth certificate be redeemed for money?
You are referring to a specific conspiracy theory called the "redemption movement" involving the United States government, bankruptcy, and Jewish bankers.
Of course, there is no truth to this ...
- 116k
37
votes
Why doesn't my bond ETF provide a hedge against stock indexes in the way I thought it would?
I read an article about this very issue in January 2023, and I saved the graphic that illustrates the historical relationship between the S&P 500 as an indicator for equities and the 10-year U.S. ...
- 1,508
36
votes
Opportunity to buy Illinois bonds that can never default?
If Illinois cannot go bankruptcy
This is missing a few, very important words, "...under current law."
The United States changed the law so as to allow Puerto Rico to go into a form of bankruptcy. ...
- 21k
35
votes
Accepted
Why is this T-Mobile bond priced so low?
According to this site and other non-public data I have access to, this bond was redeemed early in 2021. It's not clear where the quotes that BusinessInsider is coming from, but the bond is not ...
- 140k
30
votes
Accepted
Why do secured bonds have less default risk than unsecured bonds?
Unsecured bonds are backed by all assets of the issuer
No, they are not secured by any specific assets (hence "unsecured").
With a secured bond, in the event of default, the bondholders ...
- 140k
29
votes
Why don't bond makers just get loans?
Plenty of other people have mentioned that the bond issuer might be a bigger risk. That's a possibility, but there are other factors -- probably more important factors -- in play as well.
First, ...
- 391
27
votes
Why would I ever put my money into a savings account that returns less than the current inflation rate?
You keep money in a savings account so that you know you can access it at any point, and that it will always be there. It is diversification of risk.
If you have the money in equities instead, you ...
- 5,107
27
votes
How can bonds reach 0 and negative interest rates? why would someone buy them?
And how can bonds reach 0 and negative interest rates?
0% interest is simple. You just skip the coupon payments and get your money back when the bond matures. Negative interest rate bonds are issued ...
- 7,462
25
votes
Accepted
Are bonds really a recession proof investment?
No, they are not recession proof.
Assume several companies, that issued bonds in the fund, go bankrupt. Those bonds could be worthless, they could miss principle payments, or they could be ...
- 78.5k
25
votes
Accepted
What does one typically use as a money reservoir for stocks, when they are "on sale"?
TL;DR: Cash is king — and bonds are not cash.
I've written about this in this other answer. Here's part of it:
[...] inflation aside, why do we want our "equivalent to cash" position to
be ...
- 31.7k
25
votes
Accepted
Why invest in long term government bonds when the yield curve is inverting?
Short-term bonds might pay more interest, but only for a short time. When they mature, overall interest rates available for reinvestment are likely to be lower in this scenario. (Long-term rates are ...
- 30.2k
24
votes
Accepted
If Turkey doesn't go bankrupt, is there any chance they won't pay bonds profits?
You're contemplating paying 30,000 lira ($5000 US or 4400 EUR) today for bonds with a face value of 37,500 lira. If Turkey doesn't go bankrupt, in one year the bonds will pay out 37,500 lira.
If you ...
- 6,788
24
votes
Why does this 4-week Treasury bill that I bought have a 17-week term and a much earlier issue date?
Fidelity may have sold you a bill that expires 4 weeks from your order date instead of a newly minted bill. It is not uncommon to trade "off-the-run" treasury bills that have identical ...
- 140k
21
votes
Accepted
Why does this 4-week Treasury bill that I bought have a 17-week term and a much earlier issue date?
The other answer is actually misleading. No, Fidelity didn't sell you off-the-run bills. What you got is indeed a newly issued T-bill. There's a term for this: reopening.
https://www.treasurydirect....
- 2,197
20
votes
Accepted
Does buying and selling of bonds affect market price of bonds?
As others have noted, bonds are technically subject to the same market trading pressures as stocks, so they can do the same things.
But I want to address the point about unknown/irrational reasons for ...
- 695
19
votes
Accepted
Yield on municipal bonds versus treasury
In a lot of situations municipal bond returns are "triple tax free." No federal or state income tax and no AMT (Alternative Minimum Tax -- which is largely irrelevant at this point) liability.
This ...
- 49k
18
votes
Why would anyone buy U.S. Treasury Bills?
Treasury Bills (T-bills) does seem like an oddball but it might work for some folks.
I'm going to address it both your questions individually as interest and liquidity.
1) Interest
Looking at the ...
- 445
18
votes
Accepted
Why would someone buy bonds with yields comparable to US Treasury bonds?
Isn't it more rational to just buy US Treasure bonds if you can't earn a significantly higher yield from Corporate/Municipal bonds?
Say you're a large fund, like California's state pension fund. ...
- 3,642
17
votes
Accepted
Why would I buy a bond with a negative yield?
Possible reasons I can think of:
You are a central bank. Your goal is to inject liquidity into the system by buying bonds, and you don't care about low or even negative returns. Your bond buying ...
- 286
17
votes
Why invest in long term government bonds when the yield curve is inverting?
Bonds are interesting and you've come across most of what makes them so interesting. The interesting thing with bonds, is all the already outstanding notes of similar remaining duration and ...
- 49k
17
votes
Bond at 94%. Is it a good idea to buy?
Acually, you'd receive 103.125 in 6 months since the bond pays an annual coupon of 3.125%. You'd also pay about 97 for the bond based on the ASK price since you'll need the pay the amount of the ...
- 140k
17
votes
Accepted
When can you skip bonds for retirement?
When are you "rich enough" that you can skip bonds when planning for retirement?
When you can afford to take the worst expected drop in your investments and still be able to draw your ...
- 140k
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