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Your orders must
meet the following criteria:
- All
bonds, including the ticker symbols, that STOCK-TRAK trades
are listed in the registration materials.
- All
bonds have a par value of $1,000.
- When
you buy a bond, you must pay the accrued interest on the bond.
- On
your statement, the accrued interest and commission are added
together.
- You
cannot short a bond.
- If
you are buying and selling securities on the same day, always
make your selling or closing trades first to free up cash.
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It has been difficult to find websites
on the world wide web that provide Bond Pricing Information
for free. However, we came across this site(www.bondpage.com)
that has substantial information on bonds. On the bond trading
pit, in the column on the left, click on get a quote. From the
list choose the category you are looking for. Select the industry
group and other relevant information and then do a search. E.g.
If you are looking for Duke Energy, you would click on utility
as the industry group and put in Duke Energy for issue and then
do a search.
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Follow the instructions above. When you
pull up the information on a particular bond, the two columns
on the left hand side provide the credit ratings given by Moody's
and S&P.
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In order to get information on all bonds
traded the previous day, go to the Bond Trading Pit. In the
column on the left, click on symbol lookup. Once you are at
the Investing in Bonds page, on the left click on what category
on Bonds you want. Then choose sector and do a search.
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The commission on Bonds includes the
Accrued Interest charged. The accrued interest increases everyday
and is reflected in the account detail.
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Corporate Bonds are issued by companies
as well as governments. Most Corporate Bonds pay a higher interest
rate compared to bonds backed by the U.S. government, because
government bonds ussually offer tax advantages. Jane Bryant
Quinn, "Making the Most of Your Money," says you might
want to buy a corporate bond if (1) You're investing with tax-deferred
money in your retirement plan and want more interest than Treasuries
pay. Corporate Bonds are fully taxable by fedreal, state and
local governments. (2) You're in the 15% fedral tax bracket.
At that level you want more, after tax, from taxable corporate
bonds than from tax exempts. Quinn says the best way to invest
in corporate bonds is via a good, diversified mutual fund.
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Bonds are overall less risky compared
to stocks because of their fixed interest payments and the rights
bondholders have if the company declares bankruptcy. However,
over a long period of time, investments that pay a fixed interest
have a risk of falling, which leads to a decrease in the purchasing
power of those payments. If interest rates fall, bond prices
go up and vice versa. The fluctuation of a bonds price depends
on maturity. The longer the maturity, the more sensitive it
is to interest. The fluctuation bond prices in the market does
not make a difference if you are planning on holding the bond
to maturity. You will recieve cash flows throughout the life
of the bond. Corporate bonds have lower, but fixed returns compared
to stocks. In case of bankruptcy bondholders have a claim towards
corporate funds over stockholders.
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A Long Bond is a name used for a Treasury
bond that matures in 30 years. This is the longest time to maturity
that the Treasury offers.
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Corporate Bonds tend to provide better
yields than money market accounts. The reason for this is that
when people buy bonds, they invest their money for a long period
of time. An investor can sell a bond early, but whether he makes
a profit or loss depends on whether the interest rates have
risen or fallen. However, in a money market account deposits
can be withdrawn at any time and their is no risk of loss. This
flexibility, thus lower return on investment. Money market accounts
are also insured, whereas bonds are not.
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Zero-coupon bonds are sold at a low price
and make no interest payments(coupon).When the bond matures,
the investor gets the full face value($1,000) and the profit
or loss is the difference between the price paid for the bond
and its face value at maturity.
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A debenture is a type of bond, but unlike
regular bonds, they are not secured by the company's assets.
Investors loan the their money to a company based on its reputation.
If a company goes bankrupt, then all the investors who are holding
bonds are paid off first and then the people holding debentures.
Since debentures have a high risk, they pay more interest than
bonds.
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Treasury Bills are zero-coupon securities
that often have maturities three months, six months or one year.
Investing in a treasury bill is one of the safest investments
that can be made as they are backed by the U.S. government and
their maturities are so short that there is very little risk
The minimum investment for a treasury bill is $10,000. They
are sold at a discount and when they mature can be redeemed
for their full face value. Interest on T-bills is exempt from
taxes.
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A treasury note is a debt security that
is issued by the federal government. They mature anywhere from
two to ten years. The notes are backed by the U.S. government
and are issued in $1,000 and $5,000 denominations. They pay
a fixed interest and any income is exempt from state and local
taxes.
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The answer depends on your age, income
and investment objectives. A survey by the Wall Street Journal
of Portfolio Strategists at thirteen top brokerage firms, showed
that, on average, they recommended a diversified portfolio of
assets that includes 31% bonds; 61% stocks; and 6% cash. Investors
should review their portfolios frequently to make sure that
their diversified portfolio continues to meet their investment
objectives
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A bond swap is where an investor chooses
to sell a bond and purchase another with the proceeds from the
sale. Fixed-income securities are excellent for swapping because
it is often easy to find two bonds with similar features in
terms of credit quality, coupon, maturity and price. In a bond
swap, you sell one bond for another in order to take advantage
of the current market or tax conditions.
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Mortgage Backed Securities:-
These are debt obligations backed by
a pool of mortgages, which usually have a pass through feature.
This means that multiple payments of interest, principal, and
sometimes even pre-payment of mortgages are passed through directly
to the investor. There are several types of these securities.
The most popular are listed below.
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Different kinds of MBS :
a) Ginnie Mae's (Government National
Mortgage Association) :-
In this type of security, investors have an "undivided"
interest in the pool. The investor does not own any particular
mortgage as such; rather he has a proportionate interest in
the cash flow generated by the entire pool, and receives monthly
payments. GNMA's are comprised of VA (Vanguard) guaranteed loans
or FHA insured mortgages and are backed by the U.S government.
b) Freddie Mac's (Federal Home Mortgage
Corporation) :-
This security, as well as the GNMA's has a pass through feature.
In this case however they are called Participation Certificates
(PCs), and are comprised of FHOMC conventional mortgages on
single-family homes. The U.S.government does not guarantee these
securities, unlike the GNMA's. Therefore, Freddie Mac's have
a better yield.
c) Fannie Mae's (FNMA) :-
These are similar to Freddie Mac's in that they are both PCs.
FNMAs however consist of conventional mortgages as well as FHA
insured mortgages. They are not guaranteed by the U.S.Government,
however it is unlikely that the government would allow them
to default. FNMAs have a higher yield than GNMAs.
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The following table explains what these ratings mean.
|
|
| AAA |
Aaa |
AAA |
Highest credit quality |
| AA |
Aa |
AA |
Very high credit quality |
| A |
A |
A |
High credit quality |
| BBB |
Baa |
BBB |
Good credit quality |
|
|
| BB |
Ba |
BB |
Speculative |
| B |
B |
B |
Highly Speculative |
| CCC |
Caa |
CCC |
High default risk |
| CC |
Ca |
C |
High default risk |
| C |
C |
C |
High default risk |
| DDD |
C |
D |
Default |
| DD |
C |
D |
Default |
| D |
C |
D |
Default |
