Bond Primer?

Stocks A to Z
1

If the Fed slams on the brakes, might we & WEB listen to the bond market again? Can anyone here suggest a primer for those of us who have never paid much attention to investing in (trading?) bonds?

Should this be on our (10-year) radar or is it totally off topic?

2

Bond primer - Diamonds Are Forever?

2 Likes
3

https://discussion.fool.com/bonds-fixed-income-investments-10013…

This board, while not busy, has some very informative and active posters. They might point you n the right direction.

2 Likes
4

The crudest primer for bonds:
The best single approximation of your real total return is the yield on purchase date minus the expected inflation rate.
The quickest approximation of the expected inflation rate is the current inflation rate.
If that number doesn’t look attractive, don’t buy them.

Of course, perhaps a better primer is Mr Buffett’s recent letter on the three types of investment.
Capital goods, fixed income, and equities.
I can’t remember which year it was. Anyone?

The last time I bought bonds, German government bunds were yielding over 8%.
When the numbers get small or go negative, it’s usually not worth spending a whole lot of time learning and researching the fixed income market.

Jim

20 Likes
5

The basics are your broker has a selection of bonds traded over the counter.

  1. Chose your maturity and bond rating. Note the call provisions and watch yield to call.

  2. As bonds are difficult to sell plan to hold to maturity. Note that market value will fall as rates rise, but you still receive face value at maturity (unless company defaults. Buy investment grade bonds rated BBB or better)

  3. A bond ladder with individual bonds maturing say each year works well. Your ladder gradually tracks rising rates.

  4. Treasury yield curve shows trends of maturity. Each bond rating has a market differential from the curve. Avoid long bonds over abt 15 years.

3 Likes
6

Oh and don’t forget municipal bonds if you are in upper tax brackets.

7

mungofitch said:

The best single approximation of your real total return is the yield on purchase date minus the expected inflation rate.

The treasury provides a real yield curve (for Treasury notes and bonds, anyway):

https://www.treasury.gov/resource-center/data-chart-center/i…

The quickest approximation of the expected inflation rate is the current inflation rate.

Treasury’s calculation involves “the market’s” inflation expectations. I can imagine that the market’s expectations could differ substantially from an individuals’ expectation…