Nick Dow's blog : What is bonds
Bonds
can be divided into three types:
- government bonds;
- municipal bonds;
- corporate bonds;
GOVERNMENT BONDS
Another name is Treasury bonds. This
type of bonds is considered the most reliable, because these bonds are issued
by the government of certain countries, and the money received from the sale
goes to the development of any projects. By purchasing bonds from
the state, the investor, as it were, credits it for a certain period and
interest.
But they are not without drawbacks. All guaranteed reliability will have to pay with interest income. And in conditions of high inflation, this type of investment simply loses its meaning. Just like any other bond, Treasury bonds can be purchased in both the primary and secondary markets. It is important to take into account the fact that when buying bonds on the stock market, unlike the state, the broker will take commissions.
In turn, government bonds by circulation
time can be divided into three groups:
- Long-term treasury bonds. These bonds have been in circulation for 10 to 30 years, and their par value can vary from 10 to $ 1 million. And the coupons in these bonds are fixed. Medium-term Treasury bonds are in circulation from 1 to 10 years. The par value does not exceed $ 5000. Treasury bills . The peculiarity of these bonds is that there are no coupon payments on them. They are sold to the investor at a discounted price and are paid in full at maturity. The circulation period is no more than a year.
The next type of bonds is municipal bonds.
MUNICIPAL BONDS
Their other name is bonds of the local city loan. As
the name implies, these bonds can be issued by various municipalities:
district, city, region, state
Municipal bonds are also a fairly reliable investment tool and are also exempt from income tax. But, like Treasury bonds, it does not “shine” with high yields. Another disadvantage is that they can be rarely found in free sale on the secondary market. And the last - the most common type of bonds - corporate bonds.
CORPORATE
BONDS
As the name suggests, bonds are issued by
various companies to raise additional funds.
According https://thetradable.com there are several ways a company can raise
funds. The first is the issue of
additional shares, but this entails an increase in the total number of
shareholders, and may also negatively affect the price of existing shares.
The second is to take out a bank loan. But it is also not
always profitable due to high interest rates and short maturities. Corporate bonds are widespread in the stock market. It will
not be difficult to buy bonds of well-known (and not so) Russian companies. Also,
all information on the bonds of a particular company can be found on the
company's corporate website in the public domain.
How
much income can corporate bonds bring?
It is difficult to answer this question
unambiguously, since all companies are different. Some are highly liquid they are more reliable, but the profitability is
significantly lower. Other companies with a higher level of risk, but the
profitability on them can be obtained significantly higher.
- Expert