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All trading basics

Conclusion and Resources

So now you've learned the basics of bonds. Not too complicated, was it? Here is a recap of what we discussed:

  • Bonds are just like IOUs. Buying a bond means you are lending out your money.
  • Bonds are also called fixed-income securities because the cash flow from them is fixed.
  • Stocks are equity; bonds are debt.
  • Issuers of bonds are governments and corporations.
  • A bond is characterized by its face value, coupon rate, maturity, and issuer.
  • Yield is the rate of return you get on a bond.
  • When price goes up, yield goes down and vice versa.
  • When interest rates rise, the price of bonds in the market falls and vice versa.
  • Bills, notes, and bonds are all fixed-income securities classified by maturity.
  • Government bonds are the safest, followed by municipal bonds, and then corporate bonds.
  • Bonds are not risk free. It's always possible–especially for corporate bonds–for the borrower to default on the debt payments.
  • High risk/high yield bonds are known as junk bonds.
  • You can purchase most bonds through a brokerage or bank.
  • Brokers often don't charge a commission to buy bonds but instead markup the price.