The bond market refers broadly to the buying and selling of various debt instruments issued by a variety of entities. Corporations and governments issue bonds to raise debt capital to fund operations or seek growth opportunities. In return, they promise to repay the original investment amount, plus interest.

How do you determine if a bond is a good investment?

The most important aspects are the bond’s price, its interest rate and yield, its date to maturity, and its redemption features. Analyzing these key components allows you to determine whether a bond is an appropriate investment.

Are bonds safer than stocks?

Bonds tend to be less volatile and less risky than stocks, and when held to maturity can offer more stable and consistent returns. Interest rates on bonds often tend to be higher than savings rates at banks, on CDs, or in money market accounts.

What do you need to know about bonds?

A bond is a debt financing contract that allows investors to lend money to a borrower. The borrowers are typically the government or corporations who need additional capital or financing. The amount issued by the investors are paid with interest at a given term, usually at a fixed interest rate.

What happens when you buy a government bond?

An investor who buys a government bond is lending the government money. If an investor buys a corporate bond, the investor is lending the corporation money. Like a loan, a bond pays interest periodically and repays the principal at a stated time, known as maturity.

How can you tell if a bond is investment grade?

It’s easy to tell at a glance whether a bond is investment-grade or junk (and where it falls on the continuum between the two). A number of Wall Street companies rank bonds by safety. These rating agencies include Moody’s, Standard & Poor’s, and Fitch Ratings and publish simple grades on all debt issues.

What do you need to know about municipal bonds?

There’s an entire class of bond aimed at providing tax-free returns. Cities and states issue municipal bonds, or munis, to raise money to pay for schools, highways and a slew of other projects. And interest payments on the bonds are free of federal taxes. But despite the tax break, munis aren’t for everyone.