Investing in Bonds

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Overview

The bond market is the largest securities market in the world, dwarfing stock exchanges by a wide margin in terms of trading volume and activity.  A bond is an instrument of debt that functions as a loan.  The bond issuer- often a federal government agency, corporation, or municipality- issues bonds to raise capital.  The bond holder purchases the bond and lends the issuer money.  Similar to a loan, the bond issuer pays interest periodically and repays the initial amount, known as principal, on a stated date in the future.

In terms of safety, US government bonds- Treasuries- are considered “risk-free” and therefore, yield low returns relative to riskier bonds. If a company goes bankrupt, bondholders will receive priority in recovering their investment over shareholders.

Basic

PIMCO: Everything You Need to Know About Bonds
SIFMA: Why Invest In Bonds? and How to Invest in Bonds
FINRA: Bond Searches and Market Activity
Fidelity: Types of Bonds
Library of Economics and Liberty: Bonds

Intermediate

Investopedia: How Bond Market Pricing Works
Investor Guide: Advanced Concepts and Unusual Features of Bonds
PIMCO: High Yield Bond Basics

Advanced

Comovement and Predictability Relationships Between Bonds and the Cross-Section of Stocks 
by Malcolm Baker and Jeffrey Wurgler
Bond Risk, Bond Return Volatility, and the Term Structure of Interest Rates 
by Luis Viceira

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