Getting Started in Bonds

[...]... Contents Introduction Bond Building Blocks 1 PART ONE: TYPES OF BONDS Chapter 1 When Uncle Sam Needs a Dime: U.S Government Bonds 17 Chapter 2 The “I Hate Taxes” Bonds: Municipal Bonds 41 Chapter 3 Investing in America: Corporate Bonds 61 Chapter 4 Bonds Including the Kitchen Sink: Mortgage-Backed Bonds 69 Chapter 5 Going Global: International Bonds 83 Chapter 6 Paid to Wait: Convertible Bonds 93 Chapter... savings bonds attractive to so many people is that all Treasury securities (including savings bonds) are backed by the full faith and credit of the U.S government, which pledges to pay back the principal you invested, as well as the interest your money earns In this section we are going to look at what makes the savings bonds that are currently being issued so interesting and so unique Savings bonds. .. say Treasuries in the financial world, you do not mean savings bonds, so I found it ironic that when much of the public thinks of bonds, this is what they think of We buy savings bonds when a baby is born, for weddings, and for graduations We buy them for ourselves In fact, more than 55 million Americans own savings bonds, U.S Savings Bonds making them one of the most popular savings tools in the country... bond market in 2001 Data source: The Bond Market Association $2.14T Federal Agencies 13% 14 INTRODUCTION Who Issued Them How the Interest Is Paid ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ U.S Treasury bonds Municipal bonds Corporate bonds Mortgage-backed bonds Foreign government bonds ✔ Foreign corporate bonds Coupon bonds Zero coupon bonds Adjustable rate bonds Convertible bonds In ation-adjusted bonds Combining characteristics... not paying investors their interest, or if the principal payment is in danger, investors will flee from the bonds; and the price of the bonds in the secondary market will plummet Researching the issuer’s credit history, familiarizing yourself with the corporate management’s competency, and investigating the issuer’s product/service’s competitive market position will help you to avoid investing in bad... trying to time the market securities financial instruments that you can invest your money in; bonds or stocks FIGURE I.2 Interest is paid twice a year Drawing by Ken Wright 6 total return a comprehensive measure of your investment’s performance It includes change in price, plus income, plus or minus any change in currency valuation if it’s denominated in a currency other than U.S dollars ∆ price + income... plus interest 2 INTRODUCTION WHO CARES? fixed income investments also known as bonds Bond issuers are obligated to pay the income stipulated in the contract until the security matures At that time the issuer pays back the principal borrowed from the investors Most bonds have level income payments A few pay variable income streams that change according to a set formula Bonds with their promised income... they will not tax the interest from each other’s bonds It applies only to interest If the bonds are sold before maturity any capital gains would be subject to the applicable tax rate institutional investors large investors such as pension funds and insurance companies retail investors individual investors who invest smaller quantities than institutions You and me U.S GOVERNMENT BONDS One of the government’s... prevent in ation from eroding away their profits, investors include an in ation premium in the interest rate they demand For example, if investors want to earn 3% and in ation is expected to be 3%, they will want the issuer to pay them 6% The first two rules governing fixed income interest are illustrated by the Figure I.3 You can see how yields increase as creditworthiness declines and as maturities get... someone let you in on one of life’s best-kept secrets: Bonds are incredibly exciting and dynamic Believe it or not, bonds have sex appeal! Around the globe bonds have built bridges, airports, and cities They have transformed basement start-ups into international conglomerates Bonds are the primary instrument that has financed our nation’s innovation, growth, and global in uence Don’t worry if bonds baffle . Hannon Getting Started in Online Personal Finance by Brad Hill Getting Started in 401(k) Investing by Paul Katzeff Getting Started in Security Analysis by Peter J. Klein Getting Started in Global Investing. DeForge Getting Started in Internet Auctions by Alan Elliott Getting Started in Stocks by Alvin D. Hall Getting Started in Mutual Funds by Alvin D. Hall Getting Started in Estate Planning by Kerry Hannon Getting. Northwestern Investment Management Company The Getting Started in Series Getting Started in Online Day Trading by Kassandra Bentley Getting Started in Investment Clubs by Marsha Bertrand Getting Started