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Bonds that go above their issue price are called premium bonds, while those that fall below it are called discount bonds. Bond prices can fluctuate for a number of reasons, including:
Types of bonds more likely to be affected by interest rate risk: Long-term government bonds, corporate bonds, mortgage-backed securities, muni bonds and zero-coupon bonds. 3. Reinvestment risk
That means bonds are usually part of a long-term investment strategy, such as having stable income in retirement. Once you determine your goals, decide what you want your asset allocation to be.
The most common process for issuing bonds is through underwriting. When a bond issue is underwritten, one or more securities firms or banks, forming a syndicate, buy the entire issue of bonds from the issuer and resell them to investors. The security firm takes the risk of being unable to sell on the issue to end investors.
This risk depends on the particular corporation issuing the bond, the current market conditions and governments to which the bond issuer is being compared and the rating of the company. Corporate bond holders are compensated for this risk by receiving a higher yield than government bonds.
Securitization is the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans, or credit card debt obligations (or other non-debt assets which generate receivables) and selling their related cash flows to third party investors as securities, which may be described as bonds, pass-through securities, or collateralized debt ...
Corporate bonds, which are a type of debt security, function as a tool for corporations to raise capital. A high-yield corporate bond offers higher interest rates than a typical corporate bond ...
State and local governments issue municipal bonds to finance projects or other major spending initiatives. Debt issued by government-backed agencies is called an agency bond. Companies can issue a corporate bond or obtain money from a bank through a corporate loan. Preferred stocks share some of the characteristics of fixed interest bonds.