What is a Bond?
A bond is a financial asset that represents debt and is generally emitted by a company or a country to raise money for a specific purpose.
In exchange for lending money to the issuer, an investor receives an income by holding the bond, which includes the principal of the loan, as well as a fixed or variable interest payment.
A bond is a tradable asset that can be bought or sold once it has been issued.
How to calculate the value of a bond?
As a bond is a debt instrument, the emitter of the bond must repay this debt. The bond price is therefore the present value of its expected future cash flows.
How to buy a bond?
If you want to buy bonds, your can either choose to buy newly issued bonds or buy bonds on the secondary market. Here are some options :
- From your broker: Similar to stocks, you can buy bonds directly from your broker. Bonds are tradable assets, so you can buy them from other investors looking to sell those bonds.
- Using an ETF: Instead of buying bonds directly, you can buy bonds via Exchange-Traded Funds (ETFs). This will allow you to buy a certain basket of bonds and get exposure to some industries or countries. This is a good option to get immediate diversification. You can buy bond ETFs directly via the funds, or from your online broker.
- Directly from the government: You can for example buy US bonds directly from Treasury Direct. This option will allow you to avoid additional fees such as brokerage.