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.