By Annette Thau The Bond Book | Annette Thau

Summary of: By Annette Thau The Bond Book: Everything Investors Need to Know About Treasuries, Municipals, GNMAs, Corporates, Ze (2nd Second Edition) [Hardcover]
By: Annette Thau

Introduction

Get ready to discover the fascinating world of bonds with Annette Thau’s comprehensive guide, The Bond Book. This highly informative book provides a detailed yet digestible understandin of bonds, which are simply a debt written as a promise to repay borrowed money. Delve into the complex process of bond issuance, which involves a myriad of players like investment banks, lawyers, and other entities. The book’s summary will cover essential terminologies and concepts involving various types of bonds, such as Treasuries, municipals, and corporates, while also shedding light on the intricacies of the bond market and the challenges faced by individual investors. Embark on this bond journey that will uncover the inherent risks and strategies for managing investments while providing crucial insights into navigating the ever-evolving bond market.

Understanding Bonds

A bond is a written promise to repay borrowed money with interest. They are issued by governments, companies, and entities to raise capital. The bond market is not centralized, and bonds are bought and sold by investment banks in groups called syndicates. Syndicates offer to buy bonds at a stipulated price, and the winner resells them to investors. The borrower pays the investors their interest, and a fiduciary agent handles distribution. Although simple, the process of issuing a bond involves investment banks, lawyers, and other entities.

Key Bond Terminologies

Indenture, prospectus, official statement, treasuries, corporates, and municipals are some of the essential terms that bond investors need to know.

If you’re planning to invest in bonds, understanding the critical terminologies is key to making informed decisions. These include the indenture, which is a legal agreement outlining payment dates, redemption terms, and other crucial particulars between the bond issuer and buyer. A prospectus provides a brief overview of the most essential points in the indenture. The official statement refers to the prospectus after the bond is sold. Treasuries are bonds issued by the US government or its agencies. Corporates are bonds issued by corporations, while municipals are bonds issued by cities, states, and other local government units. Knowing these terms can help you navigate the complex world of bond investing.

Understanding Bonds

The bond market is complex, comprising bonds from various institutions, agencies, and companies worldwide. Although individuals can invest in bonds, they lack the necessary capital, information, and mathematical skills to trade them successfully. Bonds differ significantly from stocks, as dealers offer varying prices, unlike publicly available stock prices. Therefore, bond investors require a relationship with trustworthy brokers or intermediaries. The internet has facilitated bond trading, but online exchanges are not prevalent. An investor should understand a bond’s duration, which determines its level of volatility. The financial press offers inadequate information on bonds. A novice investor should consider investing between 40-60% of their assets in stocks, with the remainder in bonds and cash. The best combination of risk and return for risk-averse investors are two-to-five-year treasuries and five-to-ten-year munis.

Understanding Bond Trading Terms

Bonds explained: Key terms and definitions

Bonds are financial instruments that investors use in capital markets as an investment vehicle. But understanding the terms traders use when buying or selling bonds is crucial to truly understand the bond market. In this book, you’ll discover the definition of bond terms like coupon, accrued interest, CUSIP number, duration, and more.

The terms you’ll come across in bond trading include par, which is what a bond is worth when it matures and usually set at $1000. Knowing how discount and premium relate to bonds is also important. Bonds that sell below the set par value sell at a discount, while those that sell higher than $1000 sell at a premium.

As you start trading or investing in bonds, take note of the difference between bid and ask price, which is what you will receive or pay, respectively. Dealers earn commission or spread from the difference between the two. Coupon refers to a bond’s interest rate, while yield-to-call is the yield earned if the bond issuer pays the bond before maturity.

Duration describes how a bond’s price will move when interest rates shift. The longer the duration, the more the bond price will change. Finally, the total return is the sum of interest and principal gains or losses. By grasping the definitions of these terms, you’ll be able to navigate the bond market with confidence and make informed trading decisions.

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