80
votes
What stops you from using fixed income in developing countries?
assuming the currency value with respect to USD stays stable in that year.
This is where your analysis breaks down. The fact that the foreign bond pays a higher interest rate indicates that the ...
- 142k
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
32
votes
What stops you from using fixed income in developing countries?
Because currency risk is not the only risk in this scenario. The risk of the developing country (the state) not servicing their obligations are the bigger risk, hence the very high interest rates.
...
- 1,476
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
19
votes
What stops you from using fixed income in developing countries?
The other answers are correct, but I would like to explain the problem from a different perspective:
When some scheme seems to offer you free money for nothing, then you should always ask yourself ...
- 24.1k
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
15
votes
Do bonds become more valuable right before a coupon payment?
Well, sort of. The quoted price in the secondary market is for the bond itself, but when you buy the bond you pay that price plus accrued interest. So the closer you are to the payment date, the ...
- 5,522
14
votes
Accepted
Do bonds become more valuable right before a coupon payment?
Unlike Stocks or ETFs where there is a hard cutoff of dividend ("Ex-Dividend"), the buyer of the Bonds has to pay "Accrued Interest" to the seller if the Bonds were purchased between two payment dates....
- 10.5k
12
votes
Why don't bond makers just get loans?
You can get a loan at 5%, but can they get a loan at 5%? Probably not or they would be getting a loan, or selling a bond at 5%. Borrowing cost reflect creditworthiness, so they probably have some ...
- 259
11
votes
Why don't bond makers just get loans?
Make sure that you are comparing apples to apples. 12% over two years or 12% annually. 5% yearly over two years is (1.05)² -1 = 10.25% ~= 12%
The difference between 12% and 10.25% may be due to the ...
- 309
10
votes
Accepted
Financing kids' college with bonds
Could I buy 10 year treasuries?
Sure
Would that be a good choice?
Well it would be safe (meaning you would definitely get exactly the yield you bought into) but college costs have risen much more ...
- 142k
9
votes
Accepted
What does DIST refer to in this equity ETF?
"Dist" is short for "Distributing" and means that income from the underlying instruments is distributed to holders of the ETF every so often. For bond funds this income would be interest or "coupons" ...
- 30.2k
9
votes
Is there a catch in investing in treasuries close to maturity date?
The question seems to be whether you can benefit from the (normally) higher yield of a longer-term bond but limit your risk by buying it close to maturity. The answer is you cannot, because you have ...
- 30.3k
8
votes
Accepted
Pros and cons of bond ETF versus traditional bond mutual fund?
Bond ETFs are just another way to buy a bond mutual fund. An ETF lets you trade mutual fund shares the way you trade stocks, in small share-size increments. The content of this answer applies ...
- 431
8
votes
Accepted
If a bond index fund's income is re-invested, how can it be a fixed income asset?
No, you are not quite correct.
Assume you have a simple bond that costs you $100. There are 2 ways the bond provides you money: It might provide you with interest every month/quarter/year, or it ...
- 43k
6
votes
Does buying bonds individually offer an advantage over bond funds/ETFs in a low interest rate environment because bonds can be held to maturity?
I wrote about this a while back, and it boils down to risk profile.
If you hold the bond to maturity, then you minimize your capital risk: if you bought a $1,000 bond, once it matures, you are ...
- 433
6
votes
Why don't bond makers just get loans?
Since the bond interest rate is 12%, there's a good chance - say 1 in 10, just to make the numbers simple - that the borrower will default on it. So if I loan $1 million, there's a 1 in 10 chance ...
- 11.2k
6
votes
Accepted
Does an equivalent to stock "options" exist for CDs?
I doubt it, since CDs are FDIC insured and mainly target retail savers/investors.
More sophisticated investors have bond options, interest rate options, caps/floors, and other interest rate ...
- 8,557
6
votes
Accepted
Saving rate higher than the Fed rate: Too good to be true?
You can't actually get the savings rate, because it isn't currently a running business or bank. It is an early stage startup (i.e., a business pitch), they are trying to collect email addresses for a ...
- 11.7k
5
votes
Accepted
Cash out mutual funds or stay invested? Risk aversion choice
I am in a somewhat similar situation. I am in my 60's with all bases covered - no debt, health insurance covered, fully paid long term care insurance, two variable annuities covering all of my living ...
- 77k
5
votes
Accepted
Bond ETF Dividend Timing
But what's not clear is if those payments are always just the payments from the previous half of the year or if they pay out coupons as soon as they come in. I.e. do they pay out everything they get ...
- 142k
5
votes
Accepted
What do people mean when they say US 10 year Government Bond?
The 10 year is actually called a note.
And a new series is actioned off every month. The quoted 10 year rate reflects the most recent note’s quotes.
A 20 year instrument with 10 years left might ...
5
votes
Why don't investors in negative-yielding government bonds put money in positive-yielding government bonds instead?
For the same reason that some investors buy long-term bonds when the yield curve is inverted but positive: They expect that short-term rates will decline enough to make locking in the current long-...
- 30.3k
5
votes
If a bond index fund's income is re-invested, how can it be a fixed income asset?
I think you're taking "fixed income" a bit too literally. They are funds that consist of fixed-income investments.
They provide nothing unless you're able to sell for a higher price than you ...
- 142k
5
votes
How to estimate the price of a US Treasury
The price is the present value of the coupon payments and principal payment at the end, so it depends on the discount rate(s) you choose.
In practice, the price is due to supply and demand, and ...
- 8,557
5
votes
Accepted
Is the yield of a 30-year bond, issued 29 years ago and maturing in 1 year, equivalent to that of a 1-year bond maturing on the same date?
In theory, since there is no credit risk, you should expect to get the same yield as a newly issued 1-year bill and a 30-year bond with 1 year remaining.
In practice, however, there is a liquidity ...
- 142k
5
votes
How to reconcile bond duration with yield responses in Long-Term vs Short-Term bonds?
Your question refers to "interest rates" without specifying which interest rates you are talking about. Short and long term bonds are priced relative to short and long term interest rates ...
- 260
4
votes
Do Junk Bonds have higher coupon rates then investment grade/treasury bonds
Not all bonds are issued as junk. Some may start out investment grade (and thus have a relatively low coupon) and turn into junk meaning that their price would drop due to an increase in the default ...
- 142k
4
votes
Are High Yield Bonds issued at a premium or discount?
New bonds are typically issued with a coupon that matches the market yield. That way the issue price is around 100. Although, since coupons cannot be odd, multi-decimaled values, they are also usually ...
- 414
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