Basics on Bond Investments

Basics on Bond Investments

Investors buy bonds to make Money from Interest Income and Capital Gains.

Earning Interest Income is fairly straight forward. Movement in the Bond Prices will either result in Capital Gains or Losses. Investors can sell Bonds in the secondary market if they do not wish to hold it until maturity.

Factors Affecting Bond Prices
1) Interest Rates
2) Credit Quality of Issuer

1) Interest Rates have an inverse relationship with Bond Prices. If interest rates goes up, the Price of Bond drops. This is because Investors will demand a higher return than the coupon rate. They would rather buy a newly issued Bond at a higher yield.

2) The Bond price will sink if the Credit Quality of Issuer deteriorate. If the health of the Company changes from healthy to the verge of bankruptcy, other bond investors are unlikely to buy it from you unless the Bond price drops.

If the bond prices rises, the yield to maturity declines. The bond investors can choose to hold on to the bond and or sell it into the open market to make a capital gain. The bond investor can reinvest the proceeds into another bond with a higher yield to maturity.

Please see http://lionelltp.blogspot.sg/p/bonds.html to know about Bonds.

If you are interested in Bond Investments, please contact me at 90400848 or email to me at tplim1975@gmail.com.

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