Definition of Investment in Bonds

Bond – a debt security pursuant to which an investor loans money to an entity (corporate or governmental) for a defined period of time at a specified interest rate.

Bonds are commonly referred to as fixed-income securities.

Coupon rate may be fixed (usually) or variable (e.g. tied to LIBOR). Most bonds have a term of up to thirty years. Bonds can contain embedded options (e.g. call or put options), can be convertible into stock, and can contain other covenants.

Where Bonds are Traded

Bonds usually trade in over-the-counter markets.

Benefits of Investing in Bond Market

• bonds pay interest income
• have defined face value, coupon and maturity
• some bonds are very liquid
• bond can appreciate (depending on interest rates or due to changed credit rating)
• bonds can be putable
• treasuries are considered risk-free
• bonds are considered safer than stocks (bonds have a priority over shares during liquidation).

Negatives of Investing in Bonds

• bonds are subject to default
• bonds can depreciate (depending on interest rates or due to changed credit rating)
• some bonds can be callable (reinvestment risk)
• some bonds are illiquid

Useful Links for Bond Investors

• http://en.wikipedia.org/wiki/Bond_(finance)
• http://en.wikipedia.org/wiki/Bond_market
• http://www.investopedia.com/terms/b/bond.asp
• http://www.investopedia.com/university/bonds/
• http://www.investopedia.com/articles/bonds/07/fixedincome.asp
• http://www.investopedia.com/articles/02/120202.asp
• http://www.finweb.com/investing/types-of-bonds.html