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BONDS AND WHAT THEY ARE

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BONDS ARE LOANS OR IOUs

Bonds are like a debt and a Bond Fund is basically a Bank. How it works is that you lend your money to a company, the government, council and in the case of USA to a city. They then promise to pay you back in full, with regular interest payments. A council may sell bonds to raise money to build a new town hall, and the government may issue bonds to finance its debts or infrastructure it may want.

With good governments theres safety in bonds as it provides a steady stream of income to the lender. When the stock market becomes too volatile one can use bonds to balance out riskier stock-based investments. But be careful as some bonds are risky although may pay higher dividends and these are called high-yield or “junk” bonds. The best are investment-grade bonds are those the NZ government have to offer as secure.

The longer the bonds are held the better for the investor but when interest rates rise bonds can become less attractive as bond prices fall. If you hold onto your bond until maturity, it doesn’t matter how much the price fluctuates as the interest rate was set when you bought it, and when the term is up, you’ll receive the face value (the money you initially invested) of the bond back. So you see why Mutual Bond Funds can attract a lot of money and are good for many. Bond funds do not have a maturity date & roll over although individual funds do.

But in the case of Greece for instance or Argentina this is not the case as they were bankrupt. Hedge funds& vulture funds in USA bet on Argentina bonds as easy money. Argentina went into default on July 30 2014 after a $539 million bond payment was blocked by a federal judge who said that the country can’t pay any of its exchange bondholders. As there is now many who haven't been paid out if the Judge allows Singer & now Dart to claim then all the rest will want their share as well.These are called Vulture bond seekers who ply on countries in debt for high profits and maybe they have risked more than they bargained for in countries like Argentina. But NZ is different and safer.

2011, Greece gave major haircuts to its long term bond holders and again a debt ridden country that vuture funds wanted to exploit for high returns----that gamble is not paying off as these countries have no money and propped by the IMF. 

At present, in NZ the yield on NZGB32s sits at 3.8-4%.New Zealand has become a prime destination for global investors in recent years

Governments offering Investors a relatively higher premium would be of no value. The higher premium would attract the Hedge & Vulture Funds as opposed to the lenient pension funds so NZ is careful on hoiw high they go in interest rates.

 

   

 

THE SAFER bonds to invest in

Treasurys are issued by the U.S. government and are considered the safest bonds on the market. No worries about defaults. They’re also used as a benchmark to price all other bonds, such as those issued by companies & mutual funds.

Treasurys are available in $1,000 increments and sold via auction. You can bid via  TreasuryDirect.gov (with no fees) or through your bank or broker.

Treasury Bills
, or T-bills, are a short-term investment sold in terms ranging from a few days to 26 weeks. They’re sold at a discount to their face value ($1,000), but, when T-bills mature, you redeem the full face value. You pocket the difference between the amount you paid and the face value, which is the interest you earned.

Treasury Bonds are issued in terms of 30 years. They pay interest every six months until they mature.

 

BUYING BONDS

 

With regards to Bonds being safe investments; relatively, Yes. But if countries go bankrupt then bonds are no good as the USA vulture funds are finding out in Argentina. Some people do not hold all of their bonds to maturity, so there’s price risk. This is especially true with bond mutual funds. These I feel are the best buys for most investors. But the downside is they have no maturity? and the price will fluctuate up and down as interest rates change.

If you own an actual bond (as opposed to a fund) and hold it to maturity, you have the risk of inflation as well as opportunity cost. If inflation or interest rates rise, sure you can still hold the bond to maturity and get your principal back, but in the meantime your money is losing value. If you sell it to buy a different bond with a higher rate,you lose some

CORPORATE BONDS MAY BE THE BUBBLE START

Apple has just announced that it is to raise A eUROBOND of 2.8bn euros WITH one bond maturing in 8 years @ 1.67%, and the other in 12 years @ 1.08%. This is a worry of what might happen in years ahead.The bond markets are lending to Coca-Cola at 1.2%, BMW at 1.3%, and as we know, many sovereign nations at similar, or lower rates. Coca-Cola offered 8-year and 12-year euro-bonds at 1.2% and 1.9%, respectively. Merck also floated 12-year euro-bonds.  Investors are being adequately compensated for inflation risk but who can predict 12 years time??? so be careful. Maybe its better to invest in stocks of Apple???

The euro hit a 26-month low against the U.S. dollar in Nov 2014 after the European Central Bank (ECB) announced that it would not hesitate to use unconventional measures, including full-blown quantitative easing.  Could things be changing on the horizon?

 

 

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WHY ARE MANUFACTURERS & BUSINESSES LEAVING NZ: [ Read the story ] The issues are economics nothing else and many a time the owner is blamed for moving when in fact he has no say in the matter otherwise he will go bust. However read the reasons why NZ has lost the plot ---[ Compare to Thailand ] & why more factories are heading abroad now. It makes sense.[ Check WHY THAILAND ] is better for Manufacturers & any Kiwi Company. Why NZ is lost [ NZ Deficit increases ] Yes we owe money????? [ Government $250m a week borrowing ] [ Transmission Gully Impact costs ] [ Kiwi Family Savings Plan ] [ Benefit cuts good or meaningless ] [ Quit smoking-heres how ] [ Levin Business dying ] [ NZders lose out ] [ World population exploding ]

" Invest in mutual bond companies is a risk but in government bonds OK "

 
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