Bonds are a central part of the financial markets. Bond issuers get critical capital to finance their businesses and bond investors get a return in the form of interest payments. The fixed income market is one of the largest financial markets in the world.
Fixed income securities includes many sectors or types of bonds. United States government bonds is one of the largest segments. In addition to U.S. Treasuries, there are corporate bonds, municipal bonds, sovereign bonds (foreign government), and foreign corporate bonds. There are sub-sectors within sectors such as investment grade and high yield within the corporate bond market. Each has unique characteristics which can appeal to different type of investors.
Fixed income investing includes two main risks. Credit risk (the risk of being re-paid the capital upon the bond’s maturity) and interest rate risk (the opportunity cost of higher interest rates after investing in a bond).
Bonds can provide stability and diversification to an investment portfolio. There are many ways to invest in the fixed income market – individual bonds, mutual funds, closed end funds, exchange traded funds (ETF’s), index funds, and unit investment trusts (UIT).
Bond investing is commonly viewed as a more conservative investment strategy. However, the fixed income markets do contain risks that should be identified. We help educate clients about the broad range of options that bonds offer.