Skip to main content
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 ...
D Stanley's user avatar
  • 137k
65 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 ...
Eric Nolan's user avatar
  • 1,059
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. ...
ssn's user avatar
  • 1,466
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, ...
Galendo's user avatar
  • 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 ...
Philipp's user avatar
  • 24k
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 ...
Wim Coenen's user avatar
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 ...
Pete Becker's user avatar
  • 5,502
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....
base64's user avatar
  • 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 ...
stonemetal's user avatar
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 ...
borjab's user avatar
  • 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 ...
D Stanley's user avatar
  • 137k
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" ...
GS - Apologise to Monica's user avatar
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 ...
nanoman's user avatar
  • 30.1k
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 ...
OneTruDragonGirl's user avatar
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 ...
Grade 'Eh' Bacon's user avatar
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 ...
tendim's user avatar
  • 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 ...
jamesqf's user avatar
  • 11.1k
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 ...
0xFEE1DEAD's user avatar
  • 8,498
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 ...
BrianH's user avatar
  • 11.7k
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 ...
JTP - Apologise to Monica's user avatar
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 ...
Bob Baerker's user avatar
  • 76.7k
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 ...
D Stanley's user avatar
  • 137k
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-...
nanoman's user avatar
  • 30.1k
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 ...
D Stanley's user avatar
  • 137k
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 ...
0xFEE1DEAD's user avatar
  • 8,498
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 ...
D Stanley's user avatar
  • 137k
4 votes
Accepted

Are Italian bank bonds as good a deal for retail investors as it seems?

You'd be taking quite a big gamble. From the article you mentioned in comments: A model for the compensation of retail bondholders could be what Italy did after it stepped in more than a year ago ...
GS - Apologise to Monica's user avatar
4 votes
Accepted

Why are premium bonds more likely to be called than discount bonds?

If a bond is trading at a discount, it is cheaper for the issuer to buy back bonds on the open market than to call the bond. (Calling a bond generally requires the issuer to either pay the par value, ...
Jasper's user avatar
  • 3,497
4 votes

How much would I need to save to keep a fixed income consistent?

The usual rule of thumb is that you can pretty safely expect 4% passive return on a reasonably safe mix of investments. (Historical average of "market rate of return" has been closed to 8%, so this ...
keshlam's user avatar
  • 48.2k

Only top scored, non community-wiki answers of a minimum length are eligible