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129

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 fact that you paid less than the $15000 face value that you will get at maturity, only you do not receive interest along the way. By the way, no offense ...


66

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 higher quality than usual photocopier paper. This style of paper is traditionally called "bond paper" because it was often used for bond certificates when physical ...


41

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 ownership of a company, a bond (somewhat simplified) represents a portion of a company or state loan. Effectively, when you buy the bond, you are extending a ...


38

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 theory. (Thanks, @trashpanda, for the link in the comments.) Your birth certificate is not redeemable for money from either the United States government or any ...


29

The simple answer: Because you believe every other option can yield greater losses... So the thinking is; Lend it to France you'll get your money back. Put your money in a bank and there's a chance you won't get it back if the bank goes bust. Investors also believe that rates will continue to go more negative, in which case they will actually MAKE money. ...


28

Your understanding is indeed wrong. Bond yield is the effective interest rate relative to the current market price of the bond, and it is anything but fixed. There was never anyone actually paying or receiving 42% interest in the whole affair. What happened is that bonds with a nominal interest rate of perhaps 10% (for simplicity's sake, and probably not ...


25

Great question! A Yield Curve is a plot of the yields for different maturities of debt. This can be for any debt, but the most common used when discussing yield curves is the debt of the Federal Government. The yield curve is observed by its slope. A curve with a positive slope (up and to the right) or a steepening curve, i.e. one that's becoming more ...


24

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 based largely on expectations of future short-term rates.) By investing in long-term bonds, you lock in a rate that you see as still relatively high, and express ...


23

Great question. There are several reasons; I'm going to list the few that I can think of off the top of my head right now. First, even if institutional bank holdings in such a term account are covered by deposit insurance (this, as well as the amount covered, varies geographically), the amount covered is generally trivial when seen in the context of bank ...


15

A title such as "5% Treasury Gilt 2020" expresses the nominal yield. In other words, 5% is the yield you will receive if you are able to buy the Gilt at the nominal (issue) price of GBP100. Of course, you will not be able to buy such a Gilt in today's market for the nominal price of GBP100. It will be trading at a considerable premium and therefore, if ...


15

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 underwriting risk are revalued to the newest yields. The "why" will shake out like every single other investment decision. Does this make sense for my portfolio? I'm ...


13

The time to take advantage of this downgrade was BEFORE it happened, not after. Typically responding to an event after the market has already had time to correct for it is a good way to lose money.


13

This directly relates to the ideas behind the yield curve. For a detailed explanation of the yield curve, see the linked answer that Joe and I wrote; in short, the yield curve is a plot of the yield on Treasury securities against their maturities. If short-term Treasuries are paying higher yields than long-term debt, the yield curve has a negative slope. ...


12

I would like to point out one issue that has not been discussed in either JoeTaxpayer's answer or Michael Kjörling's answer. While a "zero-coupon" bond pays no interest each year/quarter/month (in the sense of sending cash to the investor that the investor can put in the bank or spend -- because there no coupons to redeem), in general, the interest ...


9

Personally I'm not doing anything; my monthly purchases are occurring as per normal. This kick in the pants was politically justified - we need to stop impersonating third world nations - but from a credit/financial perspective I doubt it will amount to much. As many commentators said over the past few months, the damage was locked into the market well ...


8

When people (even people in the media) say: "The stock market is up because of X" or "The stock market is down because of Y", they are often engaging in what Nicolas Taleb calls the narrative falacy. They see the market has moved in one direction or another, they open their newspaper, pick a headline that provides a plausible reason for the market to move, ...


8

Many of the major indices retreated today because of this news. Why? How do the rising budget deficits and debt relate to the stock markets? The major reason for the market retreating is the uncertainty regarding the US Dollar. If the US credit rating drops that will have an inflationary effect on the currency (as it will push up the cost of US ...


8

The short of it is that bonds are valued based on a fundamental concept of finance called the "time value of money". Stated simply, $100 one year from now is not the same as $100 now. If you had $100 now, you could use it to make more money and have more than $100 in a year. Conversely, if you didn't invest it, the $100 would not buy as much in a year as it ...


8

First, a clarification. No assets are immune to inflation, apart from inflation-indexed securities like TIPS or inflation-indexed gilts (well, if held to maturity, these are at least close). Inflation causes a decline in the future purchasing power of a given dollar1 amount, and it certainly doesn't just affect government bonds, either. Regardless of whether ...


8

The name of the Gilt states the redemption date, but not the original issue date. A gilt with 8.75% yield and close to its redemption date may have been issued at a time when interest rates were indeed close to 8.75%. For example in the early 1990s, the UK inflation rate was about 8%. One reason for preferring high or low coupon gilts is the trade off ...


8

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 to buy the bond at market price, which is based on the current market interest rate associated with the remaining term. Thus, your yield will be different from ...


7

This paper provides research on exactly what you're asking about (note: link opens a PDF). I have attached part of their conclusion below: First, while we find that the credit rating agencies often disagree, it is usually confined to one or two notches on the finer scale. Second, rating transition probabilities tend to increase as the rating level ...


7

Many of the major indices retreated today because of this news. Why? How do the rising budget deficits and debt relate to the stock markets? It does seem strange that there is a correlation between government debt and the stock market. But I could see many reasons for the reaction. The downgrade by S&P may make it more expensive for the ...


7

No. New Deposits to a Traditional or Roth IRA must be cash. Conversions are a different story, so the Traditional IRA contents need not be sold to convert to Roth. See IRS publication 590 chapter 1 – Traditional IRAs: Contributions, except for rollover contributions, must be in cash. [...] ... and IRS publication 590 chapter 2 – Roth ...


7

Companies do not support their stock. Once the security is out on the wild (market), its price fluctuates according to what investors think they are worth. Support is a whole different concept, financially speaking: Support or support level refers to the price level below which, historically, a stock has had difficulty falling. It is the level at which ...


6

"Who sets the prices?" Effectively the market does, like basically all openly traded things. The Greek government could well have said "5% is as high as we will go". As a result, investors may not have chosen to buy the securities. The global bond market is highly liquid, and investors who have a choice could well then choose to go elsewhere. The ...


6

Withdrawals from 401k and (non-Roth) IRA accounts, assuming all contributions were pre-tax as is probably typical, are taxed as ordinary income. This includes money from all sources: contributions, interest, capital gains, etc. This means that Treasury bonds have no tax advantage over any other investment when they are held within a 401k or IRA. Since ...


6

Here is a page on the US treasury notes Regarding how to purchase: You can bid for a note in either of two ways: With a noncompetitive bid, you agree to accept the yield determined at auction. With this bid, you are guaranteed to receive the note you want, and in the full amount you want. With a competitive bid, you specify the yield you are ...


6

You're pretty much correct. But in question 2, a bond's yield is calculated based on its current market value. The price at which that particular bond last changed hands is irrelevant. If a particular bond issue is not widely enough traded to have a market value, then its yield becomes hard to calculate.


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