Bonds (Fixed Income)

Bonds are investments in which an investor (a pension fund, for example) lends money to a borrower.  The U.S. Government is a large borrower in the bond market as are corporations.  A bond will have a specified interest rate and a maturity date. 

 

Additionally, bonds are rated by independent rating companies based on the financial strength of the borrower.  A borrower with a higher rating will be able to borrow money at a lower interest rate because the risk the borrower cannot repay the loan is lower. 

 

Typically, but not always, the shorter the time is until the bond mature, the lower the interest yield will be on the bond. 

 

The value of bonds will go up and down as interest rates change.  As interest rates rise, the value of a bond drops.  This is “interest rate risk”.  Interest rate risk can be minimized through Stable Value investments.

 

 

External Links

 

Investopedia – Bonds

-- Interest Rate Risk