worldwiseclub

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01
A bond records a simple act of lending.
An investor gives money to an issuer.
The issuer pays agreed interest.
On a fixed date, called maturity,
it returns the original principal.

02
A company may need funds to expand.
It can borrow from a bank or investors.
By issuing bonds, it promises interest.
It also agrees to repay the principal
after a fixed number of years.

03
A stock represents partial ownership.
Shareholders may gain from growth.
Bondholders own no part of the issuer.
They are lenders with the right to
interest and principal repayment.

04
Yet bonds are not always safe.
An issuer may fail to make payments.
Investors must examine who borrowed,
how long their money will be tied up,
and how much interest is offered.

05
Rates and bond prices move apart.
When market interest rates rise,
existing bond prices usually fall.
When market interest rates decline,
existing bond prices usually rise.

06
The reason is that interest is fixed.
A bond paying 3 percent loses appeal
when new bonds begin paying 5 percent.
Its price must fall to attract buyers.
Lower market rates reverse the process.

07
A strong economy can hurt bonds.
Growth can lift spending and inflation.
Central banks may then raise rates
to bring rising prices under control.
Existing bond prices are pushed lower.

08
A slowdown may support safer bonds.
Central banks may cut interest rates,
while investors seek secure assets.
Government bonds may gain demand,
but weak corporate bonds may suffer.

09
Bonds face rate and credit risks.
Long-term bonds react more to rates.
Corporate bonds often pay more,
but higher yields usually compensate
for a greater risk of nonpayment.

10
Three questions guide bond analysis.
Will rates rise, or will they fall?
Is inflation easing or returning?
Can the issuer repay what it owes?
A simple IOU can signal what comes next.

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2027_01_03