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27

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 at a higher price than the face value. See investopedia for more info why would someone buy it? Any private investor would obviously just keep their money ...


16

Why would someone buy it? Think pension funds, mutual funds, etc. They have huge amounts of funds and often a lot of excess liquidity which needs to be placed somewhere relatively secure. They could place them in a bank account, but the risk is then completely down to the risk assessment of the bank; and only a very small fraction is actually covered by the ...


15

Your main advantage is diversification. As an individual investor it can be hard to just buy individual bonds. The bond market is targeted towards institutional investors with larger portfolios. Many have a minimum granularity that is impractical for the sums of the average Joe. And even if the bare minimum for a bond is within your means you might have ...


13

Yes, these are called "off-the-run" treasuries. Since they are not sold by the treasury directly but sold in secondary markets, they are less liquid than "on-the-run" treasuries and are cheaper (have a slightly higher yield) that the more liquid treasuries sold at auction. Also, since a "10-year treasury" is just a treasury bond ...


11

I am considering investing the entire bond component in the individual bond A special risk-free savings bond with slightly higher yield than the bond ETF above (for the same duration as the bond ETF). A bond ETF typically has the following characteristics: Contains bonds from more than 1 issuer for diversification (except treasury). Sells holdings and ...


10

is this issue that complicated ? Yes - it certainly is. Here's just some reasons off the top of my head: Banks (and auditors) add independent legitimacy to an offering by making sure that the company is representing its financials accurately through an underwriting process. Companies are good at their business, but most companies aren't specialists in ...


8

You mention that a diversified bond ETF 'has no known maturity date' and thus 'perpetually takes on interest rate risk.' This is partially true. You then say "This looks highly speculative to me." This is not true, at least, no differently than a single bond. Consider a simple bond example: You own a single bond, maturing in 1 year, earning 3% ...


7

You'll buy it when it is better than the alternatives. The alternatives include A vault full of paper bills. This is really expensive to maintain. You need a location, transportation, security, insurance. A deposit at a bank. This relies on the bank staying solvent, and whatever interest rate the bank offers. If the bank offers a worse negative rate, ...


7

The simplest explanation is that they don't exist because there's no need/demand for it. I can't think of any advantages over negative-yield bonds (they don't have to be zero coupon, as long as the price is high enough to exceed the principal + coupons) but there is a significant disadvantage: the issuer would need to track and collect all the coupon ...


7

Since the standard or baseline amount is 100.00 these bonds seem to be up for sale for 520 eur and 341.10 eur instead of 1000 eur. Is that assumption correct? No - bonds do not always sell for their par value. If the coupon rate of a bond is close to the yield that you get with other bonds of similar default risk, then the price will be close to par. This ...


6

This is an old question that has been bumped because of an edit, but there's one point that I think was overlooked: The "high risk" you're seeing for a bond ETF is comparing the risk of that ETF to other ETFs in the same investment class. So its risk (and average return) is high compared to other bond ETFs, but will most likely be less than the ...


6

This would not be a wash sale - bonds are "substantially different" from stocks, even of the same company. Unless the bonds are convertible to ordinary shares, in which case they may "behave" enough like stock that they would be considered "substantially similar". Even in that case, if you sold the bonds before the end of the ...


6

Profit is sales price - cost - expenses. So yes, if you bought something for $1000 and sold it for $1,100 your profit is $100, assuming no transaction fees. It is irrelevant if you are buying and selling bonds, trading cards, or broomsticks.


5

Bonds typically have two main components: principal and coupons (interest). The principal amount is the contribution of the bond towards financing whoever issued the bond, like the loan amount on a mortgage. Bonds generally pay coupons every 3-6 months and at maturity they repay the principal amount. If you own a single bond with a principal of 1,000$ until ...


4

I think this is a very confusingly worded probability problem. Consider the chance that the BBB issuer defaults to be x, making the chance that the B issuer defaults to be 16x. If we look at the chances that an issuer has not defaulted, a.k.a. a survival rate, that would be 1-x and 1-16x, respectively. Then, if we want to see if the issuers 'survive' ...


4

If I want to invest 10,000€ in specific bond with a par value of 1,000€. When I make order, what do I get (10 bonds or one bond that is worth 10,000€)? You "get" 10 bonds - meaning that you can sell part of this lot (in whole bond increments) if you want to. If I buy a 30 year bond that has 5% coupon yield, below par value of 1,000€ (800€) (can I ...


4

You have to consider the impact of market interest rates on existing bonds. Assume that market risk-free interest rates are 2%. If I purchase a bond for $1000 that has a 2% yield and 10 year maturity, then that means I'm getting $20 per year, and my $1000 back in 10 years. Now, let's suppose market interest rates go up to 5%. My bond is still sitting there ...


4

Granularity A single bond has quite a high face value. This may not matter for the institutional investor but makes it problematic for the average Joe who just may not have enough money invested to buy a single bond. This granularity also makes it very hard to diversify properly across multiple bonds and adding your monthly contributions. Buying units of a ...


4

How often does the u.s treasury department issue bonds and at what prices? The US Department of the Treasury runs actions for these new securities: They range from T-bills: Treasury bills are issued for terms of 4, 8, 13, 26, and 52 weeks. Another type of Treasury bill, the cash management bill, is issued in variable terms. 4-week, 8-week, 13-week, 26-week,...


4

Bonds make coupon payments, which are paid to whoever holds the bond at the time of payment. Suppose a bond pays annually. If you bought the bond the day after one payment and held it until the day before the next payment, you’d miss out on both payments. You’re ok with missing the first coupon payment because you bought the bond late. But the second payment ...


4

There are two ways of quoting prices for bonds: clean and dirty. The "clean" price for a bond is what you typically see quoted from brokers, and does not take the accrued part of a coupon into account. It is a much smoother curve and only changes when underlying market conditions (interest rates, risk of default) change. What you are seeing is the ...


4

I doubt it It's hard to prove a negative, but the question on its face is almost a contradiction of terms. Shares give you the ability to own part of the company so the concept of a company renting them makes little sense. For example, why would a company want to rent you the ability to vote on decisions it makes? You could vote to not have to return the ...


4

Because the price will change to so that the yield is "fair" (according to market expectations) and people want to use their money for other things now rather than waiting for the next auction. On the day of a 2 year note auction, for example, if you hold a 5 year note that was issued 3 years ago (so it has 2 remaining years), the value of your 5 ...


3

After all, the bonds still exist like when I bought the fund. Some of them do (or most of them, or none of them, depending on how long ago you bought the fund). Each individual bond has a maturity date. Some of the bonds the fund held when you purchased it have likely matured, and some of the bonds it holds now likely hadn't been issued when you bought it. ...


3

In short, because the market prices them that way. There is still huge demand for (effectively) risk free long term bonds at these rates, for a number of reasons so large many books could be written about it. However, for the sake of a super of a super simple overview, here's two key points: Long term risk free/low risk debt has historically always had a ...


3

Both. Moody's, S&P, and Fitch assign both issue ratings (for a particular bond), and issuer ratings. When you're looking at a particular bond, sometimes there are both issuer and issue ratings (and sometimes they differ if this bond differs from other bonds - it may be subordinated, or it may have collateral, or some other features that affect the rating)...


3

Yield for a coupon-bearing bond is not a simple closed-form calculation. You have tried a few approximations that may be close (or maybe not), but the exact calculation requires you to look at the current cost of the bond (including any accrued interest), all future cashflows (the coupons plus the final redemption), and calculate the equivalent interest rate ...


3

Bonds are a bit backwards in that the end amount is fixed (if you hold to maturity) so the profit (yield) is inversely related to the purchase price. A decrease in yield means an increase in price since you have to pay more to get the same redemption value. If you own a bond, a decrease in yield is good, since your bonds are worth more. If you want to buy ...


3

I think you're mixing up current yield, coupon rate and yield (which is typically defined as "yield to maturity"). The stated rate on a bond (e.g. the in "Tenet Healthcare Corporation 5.13%") is just the coupon rate and is a fixed percentage of the redemption amount (i.e. if you buy 10 bonds with a par (redemption) value of $1,000 each ...


3

(This answer is US-centric. I don't know about other countries' bond markets.) In other words, do bond funds have an inherent advantage over individual bonds within a periodically rebalanced portfolio that has a fixed bond allocation? Yes, I think so. I've looked at this problem too, and the problems (at least for someone at my scale) with buying ...


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