Bonds
Bonds are debt investment instruments issued by companies, corporations, banks, supranational entities and sovereign states. These entities require funds for their various programs, and apply to the international investment community for loans to finance their projects. These loans are repaid, with interest, at specific rates, with maturity dates at specific times in the future.
Individual bonds are issued for a specific currency denomination, amount, interest certificate (often termed the “coupon”), and maturity date. Variations in each of these parameters are possible offering the investor great flexibility in selecting investment options. For example, coupon payments may be fixed, or floating. For those investors who take the view that interest rates may fall, selecting a bond with a fixed rate of interest that will outperform prevailing bank interest rates will turn out to be a sound investment. On the contrary, those investors who see interest rates rising in the future, and who chose to purchase bonds with floating rates of interest, then those investments in turn will result in excellent returns.
As with all investments, risk and reward go hand in hand. The best return or “yield” will be associated with those bonds issued by institutions and companies that may be considered less than perfect investment grade. For this reason, international rating agencies such as Standard and Poor’s and Moody’s exist to warn investors from investing in debt issued by less than wholesome financial institutions. Of course, many investors are looking for such risky investments, and rating agencies offer investors a clear level of investment transparency.
In order to benefit from bond purchases, investors must be constantly aware of movements in many different financial and market indices. Bonds are extremely sensitive to interest rate movements, but they can be just as easily affected by movements in stock markets, foreign currencies and commodity prices.
Bond investment offers both the small investor and the international fund manager opportunities to play the “interest rate game”. The flexibility provided within the international bond market makes this form of investment one that every serious financial investor should consider.
For more infomation on investment options choose from the list below. |
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Banking - Business Finances - Economics - Insurance - Investing
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