| Bonds Online |
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| 5/10/2013Market Performance |
| Municipal Bonds |
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S&P National Bond Index
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3.00% |
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S&P California Bond Index
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2.96% |
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S&P New York Bond Index
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3.13% |
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S&P National 0-5 Year Municipal Bond Index
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0.70% |
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| S&P/BGCantor US Treasury Bond |
400.09 |
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| Income Equities: |
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| Preferred Stocks |
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S&P U.S. Preferred Stock Index
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848.03 |
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S&P U.S. Preferred Stock Index (CAD)
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636.26 |
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S&P U.S. Preferred Stock Index (TR)
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1,701.05 |
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S&P U.S. Preferred Stock Index (TR) (CAD)
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1,276.26 |
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| REITs |
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S&P REIT Index
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174.07 |
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S&P REIT Index (TR)
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425.30 |
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| MLPs |
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S&P MLP Index
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2,469.58 |
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S&P MLP Index (TR)
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5,428.50 |
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See Data
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Know Your Bond Basics |
US News - June 17, 2011 - By Tim Lee
I have been invited to countless conference calls, webinars, and conferences that promise to educate me about the outlook for municipal bonds. However, in all of that noise, some of the most important but least understood implications for today's bond market are being overlooked by many investors.
Here are some important concepts muni bond investors should be aware of:
[See 50 Best Funds for the Everyday Investor.]
Why do bond prices move? Bonds are a very simple financial instrument: They are loans. As with all loans, bonds pay an interest rate to entice investors to lend money. In the bond market, these interest payments are called coupons. In general, coupon payments are fixed and have set schedules (annual, semi-annual, quarterly). But, while these coupon payments are static, the interest rates investors in the market demand for their investments are not.
A simple example. Assume that you buy a $1,000 (par value) bond, which pays a fixed coupon of 5 percent and matures in 10 years. You would be entitled to a $50 annual interest payment and (assuming no defaults) a $1,000 principal payment ten years in the future.
Now, fast forward one year, and assume the interest rate in the market has risen from 5 percent to 10 percent. Interest rates and bond prices are inversely related—as interest rate rises, bond prices decline. If you wanted to sell the bond you purchased last year for $1,000 to another investor, investors would demand that you match the market rate of 10 percent. However, for your bond's coupon rate to make a 10 percent interest payment, another investor would only be willing to pay $500 for your bond (your $50 coupon is 10 percent of $500).
[In Pictures: 6 Numbers Every Investor Should Follow.]
In this simplistic example, you now own a "discount" bond—your bond would be trading below or at a discount to the initial par value. Because of this fluctuation, you may end up with more or less then what you originally paid for the bond, unless you hold it to maturity.
Premium vs. discount. As with most everything in the bond markets, the terms "premium" and "discount" are relative. As referenced above, your bond would be referred to as a "discount" bond if the current value an investor would be willing to pay in the market is below the original issue price or "par value." Alternatively, if the market value of your bond is above the original issue price it would be a "premium" bond.
Which is better? There are benefits and drawbacks to each price condition. For discount bonds, you have the benefit of likely seeing appreciation of the price of your bond. In other words, if a bond was issued at $1,000 and you were to buy it for $900, you would realize a $100 or 10 percent capital appreciation to maturity, assuming no default.
However, there are cases in which buying a premium bond can be advantageous. Suppose you buy a bond for $1,100, which you know will mature at $1,000 in the future, assuming no default. You are essentially assured to receive 10 percent less than you paid for the bond. However, if you are a taxable investor, you may also realize a meaningful tax savings by deducting that capital loss from other capital gains realized in the same tax year.
For the Complete article.
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