would someone please explain bonds

[john gov.]

Stocks are perfectly clear to me but bonds/treasuries??? I dunno. What are they talking about when they say bond prices are up, yields are such and such? What is supposed to make one happy, high price, high yield?
How to figure?
Thanks,
John Gov

[Avenger]

First let me say that I'm not in the business so if you really want to get technical you'll have to ask somebody else. But simply put, a bond is an IOU. By buying a bond you are loaning money to the government or a corporation for a certain period of time, and the bond is their agreement to pay you back with interest. They are considered safer than stocks in most cases but there may be risk involved if a company or even certain government agencies (municipalities, i.e. New York State or a county or town will sell bonds to finance projects) are not financially sound. This is where ratings come in; highly rated bonds are safer but will pay less interest (yield) to reflect this. A company with weaker finacials will have to pay more interest to compensate for that.

Bonds can also be resold. So if you buy a five year bond at 5% and the prevailing rate is 7% and you decide you need the cash before that 5 years is up, it is possible to sell that bond to another investor. It will sell at a lower price that reflects the lower interest rate. The math to compensate for the interest rate differential isn't terribly complicated once you have the formulas. Unfortunately my finance classes were about 20 years ago, so I'd really have to search to find my notes with the formulas. I'm sure there's a website somewhere that can supply them if you search. Try a financial company instead of a fishing site.

Hope this helps. Good luck with your investments.

[hubris 1]

bonds are like saving's account's. let's say you put a hundred dollars in the bank at 5%. interest rates drop...... the value of your savings goes up. interest rates rise....the value of your savings drop. its a return on investment. bonds are for someone that is looking for % return. life is short, what are you going to do with the money? money wont make you rich or happy. it's like a tool box, learn to use the tools........now you got it licked. cant wait till you turn 65 to start using it.

[john gov.]

Here is where I get confused..."the interset rates drop and the value of my savings goes up"...how the hell does that happen?
john gov.

[Avenger]

I think what the art critic is saying is that if you have a bond at 5% and the interest rates drop to 4% you are getting a higher yield than the market, thus more value. If the rates increase you lose value because your money is locked into a bond at a lower rate. Your confusion with this example comes from the fact that the interest rate on a savings account will fluctuate with the market so you don't gain or lose when the rates change (other than having less gain at a lower interest rate.) The rate on a bond is usually fixed, so there's a differential that can make money, or lose, relative to the market. The benefit of bonds isn't really in the rate differentials, although that's nice if it works in your favor. The benefit is a relatively stable and secure income expectation as opposed to the volatility of the stock market.

BTW, anybody who thinks money can't buy happiness doesn't know where to shop.

[fountain17]

OK, for simplicity purposes: A Bond is a debt obligation of the issurer. YOU are the purchaser: It has a Maturity date when the debt must be repaid to you (You get your original investment back)

So you buy a Bond Priced at $100. You give a company/gov that money.

It "yields" Or pays you 5% a year for lending that company/govt that money;

Meaning you Make $5 per year for every $100 invested;

Not bad...

The relationship is Inverse or opposite also in the following example;

If the price of the Bond goes to $105

Than...

The "Yield" for New Buyers of that Bond at that price ($105)may be 4.75% . The "yield" went down.

For you, who has already purchased the Bond, Your "Yield" is locked in and does not change.

You can than sell that Bond at a profit to principle ( Your original investment) which would now be $105 vs your original investment of $100

The opposite is also true: If the Bond Price goes down, Its yield goes up, but you are locked in to your original purchase price and "yield" at that time also.

Most people by bonds for that "yield" only and income stream which could be paid monthly, quarterly or yearly to you by the isuer

At Maturity, when the Bond (debt) is payable to the owner (you), you get your full investment back ($)($100). In that regard you have made that original "yeild" compounded on a yearly basis. (with some exceptions if the issurer, goes out of business, declares bankruptcy etc...)

In the end... you are lending some entity money and they pay you a % for that money over a period of time

[tom s]

I have found for my age(close to retirement)that tax free bonds make sense.I make right at 5 percent tax free.So far they have been good for me.Tom

[Glenn W]

Be nice to your brothers Glenn----

Here ya go---
http://finance.yahoo.com/education/bond.

Will be happy to answer any specific questions after you read this

[perfectscore]

if the company that u are invested in goes bk, the equity holders get the shaft but the bond holders get in line to be paid first. i hate bonds give me growth or give me cash

[Glenn W]

if the company that u are invested in goes bk, the equity holders get the shaft but the bond holders get in line to be paid first. i hate bonds give me growth or give me cash

Many a fortune has been made (and lost) on bond options--- you got nads and want growth potential?--- play the bond option game.