#bonds #investingideas #treasurybonds #bondyields #finstreamtv What is a Bond? Bonds Explained. Ask The Professor is a finStream TV personal finance short form video series hosted by real life Professor Mike Milligan. In this episode of Ask The Professor, the Professor discusses bonds, including treasury bonds, corporate bonds, municipal bonds, yields, safety and tax ramifications. 00:00 Introduction 00:16 What is a bond? 00:35 Interest 00:45 Tax 01:35 Corporate Bonds 02:11 Municipal Bonds What is a Bond? A bond is a debt investment in which an investor loans money to an entity, typically a corporation or government, for a defined period at a fixed or variable interest rate. Bonds are essentially IOUs issued by the borrower, promising to repay the principal amount (the initial investment) at maturity, along with periodic interest payments known as coupons. Here are the key features of bonds: Issuer: The entity issuing the bond is known as the issuer. Issuers can be governments (federal, state, or local), corporations, municipalities, government agencies, or international organizations. Face Value: Also known as the par value or principal, this is the amount of money the issuer borrows and promises to repay to the bondholder at maturity. It's typically $1,000 for corporate bonds and government bonds. Coupon Rate: The coupon rate is the fixed or variable interest rate paid to the bondholder, usually expressed as a percentage of the bond's face value. Coupon payments are typically made semiannually or annually. Maturity Date: The maturity date is the date on which the issuer repays the principal amount to the bondholder. Bonds can have short-term maturities (e.g., less than one year), intermediate-term maturities (e.g., one to ten years), or long-term maturities (e.g., more than ten years). Types of Bonds: Corporate Bonds: Issued by corporations to raise capital for various purposes, such as financing operations, funding expansion, or refinancing debt. Government Bonds: Issued by governments to finance government spending and projects. Examples include Treasury bonds issued by the U.S. government. Municipal Bonds: Issued by state and local governments or their agencies to finance public projects, such as infrastructure, schools, or utilities. Agency Bonds: Issued by government-sponsored enterprises (GSEs) or federal agencies, such as Fannie Mae or Freddie Mac, to support specific sectors, such as housing or agriculture. Credit Quality: Bonds are assigned credit ratings by credit rating agencies based on the issuer's creditworthiness and ability to repay its debt obligations. Higher-rated bonds (e.g., AAA, AA) are considered safer investments with lower default risk, while lower-rated bonds (e.g., BB, B) are considered riskier investments with higher default risk. Market Price: The market price of a bond may fluctuate based on changes in interest rates, credit quality, economic conditions, and investor sentiment. Bond prices move inversely to interest rates: when interest rates rise, bond prices fall, and vice versa. Yield: The yield on a bond is the annualized return earned by the bondholder, expressed as a percentage of the bond's current market price. It reflects both the coupon payments and any capital gains or losses realized when the bond is bought or sold. Overall, bonds are considered relatively safer investments compared to stocks because they offer fixed income and capital preservation. They are often used by investors to diversify portfolios, generate income, and manage risk. However, investors should carefully consider factors such as credit risk, interest rate risk, and liquidity before investing in bonds.