Bond market news

Bonds are debt obligations, issued either by companies or governments, which undertake to pay investors back over a specific period of time.

  • Bonds can be issued by companies or by governments
  • Bonds are never quoted alone but priced together with an interest rate called the yield
  • Bonds are always limited to a defined time span
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What are bonds?

Bonds often have a fixed rate of interest which is sometimes called a ‘coupon’. Bonds also come with a fixed investment term. For instance, governments frequently choose 1, 5 or 10-year bonds when they need to raise a specific amount of money in a relatively short period of time. Similarly, companies will go to the bond market if they need to raise finance for a specific project, or if they need to access extra finances during a shorter period of time. The same characteristics apply for both company and government bonds.

Bonds have different names in different countries. For instance UK bonds are called Gilts. In the US bonds are known as Treasuries and German bonds are called Bunds.

How to trade bonds

Bonds come with more information than the majority of financial assets. So, if you trade a bond you need to know when it was issued, by whom and its expiry date - that is the date it is due for redemption.

The prices of bonds are never quoted alone, they always come together with the interest, the so-called yield. The yield and the bond are always moving in opposite directions. So, if a bond raises, a yield tends to fall.

While bonds are initially sold at auctions into the bond market, bond trading goes on all the time. Traders focus on the yield rather than the price, as this is the best measure of the value of a bond. Bond prices typically move incrementally and require leverage to profit from them over the short-term - unless trading during times of crisis.