Reading 2021-07-22
- Ref:: The Poor Swiss
- Title:: How do bonds and bond funds work?
- Author:: Baptiste Wicht
- Year of publication:: 2021
- Category:: Blog
- Topic::
Notes from reading
- In essence, a bond is fairly simple: it is a loan of money from one entity (the lender) to another entity (the borrower). In exchange for this money, the borrower will pay some interest to the lender. The interest rate is fixed when the bond is concluded.
- If the borrower defaults, your money is lost. This is very unlikely to happen if you hold bonds from a very safe government such as Switzerland or the United States.
- Type of bonds:
- treasury bonds: emitted by a national government
- municipal bonds: emitted by local governments
- corporate bonds: emitted by companies
- Ratings of bonds: 3 main rating agencies
- Moody’s
- Standard & Poor’s
- Fitch
- Value of bonds
- When bond interests are going up, the values of existing bonds will go down
- Bond funds advantages vs buying bond directly:
- Simplicity
- lower the impact of changes in interest rate