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Bonds are just like IOUs.
Buying a bond means you are lending out your money.
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Bonds are also called
fixed-income securities because the cash flow from them is fixed.
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Stocks are equity; bonds are
debt.
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The key reason to purchase
bonds is to diversify your portfolio.
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The issuers of bonds are
governments and corporations.
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A bond is characterized by
its face value, coupon rate, maturity and issuer.
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Yield is the rate of return
you get on a bond.
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When price goes up, yield
goes down, and vice versa.
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When interest rates rise, the
price of bonds in the market falls, and vice versa.
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Bills, notes and bonds are
all fixed-income securities classified by maturity.
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Government bonds are the
safest bonds, followed by municipal bonds, and then corporate bonds.
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Bonds are not risk free. It's
always possible - especially in the case of corporate bonds - for the
borrower to default on the debt payments.
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High-risk/high-yield bonds
are known as junk bonds.
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You can purchase most bonds
through a brokerage or bank. If you are a Malaysia citizen, you can buy
government bonds through Bank Negara Malaysia (BNM - Malaysia Center Bank)
or its agents.
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Often, brokers will not
charge a commission to buy bonds but will mark up the price instead.
