Bonds
Fixed Income – Bonds are fixed income
Debt Instruments – Loaning money to corporation/government
Interest Payments – Interest payments are most commonly made semi-annually over the term
Paid at maturity – Principal amount of bond usually paid at maturity
Primary Market – corporations and governments – federal, provincial, or municipal – can both issue bonds to raise money
Issued at face value, same amount that’s paid at maturity
Bond issuer deals directly with investor to facilitate bond purchase
Secondary Market
All buying and selling after issue is on secondary market
- Bonds trade through stockbroker
- Bonds sell at par, premium or a discount
Many factors impart the pricing of a bond
The lingo – Things to consider
Issuer – Corporation or government that issues the security
Principal – Known also as the par or face value (usually at $100 at primary or a bit different when it is a secondary market) – Initial amount of bond and amount that is returned at maturity
Coupon – Annual interest rate paid on bond Payments are coupon payments typically paid semi-annually. Maturity Date Date the principal, face or par value is returned to holder
Bond Pricing Terms
Par – Bond is trading at 100. Will mature at this value
Premium Bond is trading greater than $100
Will mature at less than this price
These bonds typically have a higher coupon rate than prevailing interest rates
Discount – Bond is trading less than $100
Will mature at more than this price
These bonds typically have a lower coupon rate than prevailing interest rates
Coupon vs Yield
Coupon – Annual interest rate paid semi-annually. Fixed over the life of the bond.
Yield – Calculates actual return of bond. Takes into consideration both coupon and price of bond.
Yield = annual coupon payment / market value of bond.
Web broker – Trading Buy/Sell and New Issues or IPOS (Not available in TD Dashboard due to having an advisor)
TD Direct Investing Fixed Income Investments
Bonds
Intro to Bonds
Inside Investing Ask Me Anything: Answering your questions about bonds
How to build a bond ladder for predictable income