Bond Trader

 

Accoring to Investopedia, a bond trader is "A broker who executes over-the-counter bond trades between institutional investors (bond traders). Bond brokers act as an intermediary between institutional investors to keep the identities of the other parties anonymous. Brokers communicate with traders on telephone and over the internet to obtain quotes from both parties."

A Bond is a loan made from an issuer to a holder.  In the real world, bonds are typically issued by a company to raise money.  The company then agrees to pay back the amount, with interest, to the financers of the bond.  The financers can be other corporations, or in the case of US Savings Bonds, they can be individual investors.  Bonds can be rendered worthless if the issuer declares bankruptcy or defaults on the repayment terms.

 

There are three basic types of bonds:

  1. Government Bonds
  2. Municipal Bonds
  3. Corporate Bonds

 

There are three clases of Government Bonds, depending on the maturity date.

  • Bills:  Mature within one (1) year (known as Treasure Bills or 'T-Bills')
  • Notes:  Mature between one (1) and ten (10) years (known as Treasure Notes or 'T-Notes')
  • Bonds:  Mature more than ten (10) years (known as Treasury Bonds or 30-year bonds)

Government bonds are the safest type of bond investment because governments rarely go bankrupt.  Since government bonds are the safest type of bond investment, they offer the lowest interest rates of any of the bond types.

 

Municipal Bond, also known as "munis", are typically issued by cities.  Since cities rarely go bankrupt, they are the next safest type of bond investment.

 

Corporate Bonds are loans to companies that want to raise cash.  Since companies can (and do) go bankrupt at a higher rate than governments or cities, these types of bonds carry a larger degree of risk.  Since there is a higher risk of not receiving repayment, the interest rates are considerably higher for corporate bonds than government or muni bonds.  Maturity length can vary greatly from under 5 years to over twelve years. 

 

Withing corporate bonds, interest rates will vary wildly as well.  A well-established company with a sound financial base will expect to pay less interest that a new unproven company that has very little financial history.

 

Bond Trader Links

 

How to become a commercial bond trader:  investopedia.com/ask/answers/09/bond-broker-certification.asp

 

How to read bond prices:  learnbonds.com/how-to-read-a-bond-quote

 

What are Junk Bonds:  news.morningstar.com/classroom2/course.asp?docId=5401&page=2

 

Bonds in a retirement plan:  money.cnn.com/retirement/guide/investing_bonds.moneymag/index4.htm

 

How to buy US Savings Bonds Online: treasurydirect.gov/readysavegrow/start_saving/buying_bonds.htm