by The Investor on January 10, 2009
In normal times, corporate bonds are the also-rans of the asset class world. They’re sometimes sexed-up, such as in the 1980s when Wall Street raiders used junk bonds to fuel company takeovers. But usually they’re too boring to interest private investors.
Boring can be profitable, but only if the underlying risk/return case is good. In my personal view, that’s rarely true of corporate bonds. (Many financial advisors and writers think different).
Corporate bonds:
- Offer none of the income growth of equities
- Are still exposed to the risk of company failure
- Don’t adequately diversify the risk of holding equities
- Aren’t anything like as secure as government bonds (governments can print money to pay their debts)
- Yield only 0.5-1.5% more than government bonds (in normal times!)
[click to continue…]
by The Investor on January 21, 2009
Just as governments issue bonds to finance public spending, so companies issue bonds to raise money to invest in their business.
For companies, corporate bonds provide an alternative to raising money by issuing shares. For private investors, corporate bonds offer the opportunity to buy a fixed income in exchange for an investment of capital.
All types of corporate bonds share common traits that you need to understand before you consider an investment.
[click to continue…]
by The Investor on January 26, 2009
There are three main things that drive changes in a corporate bond’s yield and so its price:
- The closeness to the redemption date
- The interest rate environment
- The perceived risk of the bond defaulting
[click to continue…]
