THE BOND MARKET. A Deeper Understanding of a Major Economic Market Emma Ricci. WHAT IS A BOND?. A bond is a debt security, similar to an I.O.U. When you purchase a bond, you are lending money to a government, municipality, corporation, federal agency or other entity known as the issuer.
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A Deeper Understanding of a Major Economic Market
1.Short-term notes: maturities of up to 4 years;
2.Medium-term notes/bonds: maturities of five to 12 years;
3.Long-term bonds: maturities of 12 or more years.
CALL Option: provisions that allow or require the issuer to repay the investors’ principal at a specified date before maturity.
PUT Option: option of requiring the issuer to repurchase the bonds, at a specified time, prior to maturity.
Two Types of Yields:
Current Yield: annual return on the dollar amount paid for the bond and is derived by dividing the bond's interest payment by its purchase price
Yield To Maturity: total return you will receive by holding the bond until it matures or is called.
**When prevailing interest rates rise, prices of outstanding bonds fall to bring the yield of older bonds into line with higher-interest new issues
**When prevailing prices fall, prices of outstanding bonds rise, until the yield of older bonds is low enough to match the lower interest rate on new issues.
federal income tax on the interest from most municipal bonds, and in many cases no state or local income tax, as well.
**Since rising interest rates push bond prices down, the bond market tends to react negatively to reports about strong economic growth.
Municipal: issued to raise money for schools, hospitals, highways, etc.
Corporate: debt obligations issued by private and public corporations
Zero-Coupon: Bonds with no periodic interest payments (introduced to the marketplace in 1982)
RATE MATURITY BID ASK YLD
7 3/4 Feb. 01 105:12 105:14 5.5
5 3/8 Feb. 01 99:26 99:27 5.44
ISSUE COUPON MAT PRICE YLD to MAT
GO bonds 5.00 5-15-28 97 1/8 5.19
Public Power 5.00 1-1-28 97 5.2
BONDS Cur Yld Vol. Close Net chg
BosCel 6s38 9.2 22 65 3/8 +1/4
PacBel 65/8s34 6.7 5 991/8 -1/8