| A | B |
|---|
| The Bonds market consists of | (1) IOUs (2) loans (3) borrowing money |
| the world's largest market consists of | (1) debts (2) bonds (3) IOUs |
| the largest market overall is | (1) tradable on the open market |
| Bond Market gives a clear signal about | (1) risk appetite (2) the flow of money |
| Bonds | (1) are the world's debt capital markets, because this is where money is borrowed by and lent to governments, companies, municipal organizations or countries. |
| I owe you money; bonds | (1) reflects the cost of actually borrowing money (2) tell us about the money flow between all the various markets |
| Bonds are going to tell us | (1) the appetite for risk (2) if we should pay attention and note if the market is going to be a little bit more risky, then we can go with assets or risk off. |
| If the Bond Market | (1) is telling us that we do not need to be as risky then we can play with assets that are risk on. |
| The Bond Market | (1) tell us market sentiment and risk, as well as the longer term economic outlook which reflects interest rates, inflation and more which affects currency markets. |
| Bond Types | 1) Treasury Bills -- matures in less than a year -- discounted & paid on maturity date 2) Treasury Notes -- matures in 1-10 yrs -- paid every 6 months until maturity date 3) Treasury Bonds -- matures in 10 - 30 yrs -- paid every 6 months until maturity date |
| Bond Components | (1) par value -- face value (how much) -- fixed until maturity doesn't change (2) coupon -- interest rate offered - fixed until maturity date (3) maturity - the time to repay par value - fixed period to maturity |
| US Bonds | (1) is like a loan from the gov't |
| The Discount Rate | Consumers (1) can buy these bonds, and the US will pay you back later (WITH INTEREST) |
| Economy is EXPANDING too fast (inflation) | (1) the feds will SELL bonds to consumers |
| Economy is in a recession/depression | (1) the feds will BUY bonds from consumers |
| If economy is too strong or expanding too rapidly (inflation) | (1) Fed will sell bonds to consumers(2) consumers will withdraw their money from the bank to buy bonds (3) that means the banks have less money in their vaults to loan consumers (4) if consumers can’t borrow money from banks, they can’t spend money at businesses and this slows the economy down |
| If economy is weak (recession) | the fed will (1) buy back the bonds (2) give consumers money in exchange for the bond (3) consumers will deposit the money into their bank (4) bank can have more money to lend to other consumers (5) consumers take the loans, and spend the money (6) this action pumps dollars into our economy (Expansion!) |
| Bonds | (1) market have an inverse relationship with the equities market |
| Bonds | (1) have an inverse relationship with equities (2) value decreases as equities value increase |
| Bonds | (1) companies can sell bonds also to raise capital (2) company bonds are riskier than government backed bonds |
| The flow of money | (1) selling bonds leads to deflation (2) buying bonds leads to inflation |
| Par Value | (1) face value (how much) -- fixed until maturity doesn't change (2) coupon -- shows the interest that the respective bond yield |
| Coupon | (1) interest rate offered - fixed until maturity date |
| Maturity | (1) the time to repay par value - fixed period to maturity |
| Bonds | (1) are interest bearing securities. |
| Bonds | (1) unlike shares are not traded in another currency, but instead in percent. |
| the coupon | (1) shows the interest that the respective bond yields. |
| The issuer | (1) of the bond takes out a loan on the capital market and therefore owes a debt to the purchaser of the bond |
| Purchasers | (1) of bonds consequently have a claim against the issuer |
| Bonds | (1) are traded on the bond market |
| Companies | (1) sell bonds to finance ongoing operations, new projects or acquisitions |
| Investment-Grade Bonds, | (1) are lower-risk investments than equities |
| Bonds | (1) can help hedge the risk of more volatile investments like stocks |
