Our article today takes us through Investment Bonds, because they are necessary when it comes to knowing how investment bonds work
State bonds and treasury bills are investment bonds, but it is important to know about their operation and that is what we will explain in this
What is fixed income?
This is a very striking issue, and therefore it is important to have an idea of what it means exactly, since fixed income is called the Treasury bills or the State bonds, and these in turn are nothing more than debt instruments. which can be issued by a state or by a private company, with a certain value that allows to generate exchanges between investors, therefore the importance of knowing how investment bonds work.
The biggest difference that we can observe between the state bonds and the treasury bills is simply the issuance term, since in the case of the treasury bills these are usually of terms less than 18 months, the discount formula is used for which when buying a nominal less at the interest rate applicable to the operation, we will be returned at maturity, the total nominal.
The state bonds are usually issued over 18 months, where the payment of coupons is implemented, where the initial moment we make a payment or percentage thereof and this is paid to us in the quarterly, semiannual or annual coupons, on the interest on the nominal , because when the expiration date of a certain product arrives the nominal plus the last coupon is returned.
What are state bonds?
To know how investment bonds work, it is important to keep in mind that state bonds are simply Investment Bonds, that is, certain securities that are usually issued in the long term and are issued by the government, in order to finance the public deficit, it is where investors appear.
The bonds and obligations of State present a well marked difference and is the repayment term, since both are issued and promise fixed returns that are usually paid through annual payments.
It should be noted that securities issued at nominal value tend to pay some explicit interest on the investment, which leads us to explain that for example a 3 percent bond will continually pay that equivalent on the initial investment, as it is important to take into account that the emissions are normally carried out via a competitive auction, to ensure liquidity.
Certain fundamental details about how investment bonds work:
- ü Treasury bills are always short term.
- ü State obligations are issued at 10, 15 and 30 years.
- ü The obligations are issued for nominals of 1,000 euros or for defects by multiples of that amount.
Quotation of state bonds and their obligations:
Every financial product is quoted at a certain time, because they are limited and therefore offer the option to buy or sell them to the investor, in order to return the money to the investor, a very important detail here is that if for a lifetime Value price was 1,000 euros, simply, this nominal value could be above or below making the Investment Bonds depend on:
- ü the interest of the secondary market when executing the purchase.
- ü How close or far it may be from the coupon payment.
- ü The health of the economy of the country or company that issues these bonds.
What is the return on Investment Bonds?
The investor generally seeks to focus on what generates profits, therefore knowing how investment bonds work is essential, since profitability is one of the counters that are usually sought, and the good thing is that the investor knows exactly when and How much you get, as the issuing company or agency is obliged to comply with the stipulated payments, profitability is usually highly related to credit quality, as the issuer of the bond must have a qualification that accredits it, and where the risk is minimal , since the better it will be the more attractive it will be for the investor, although today it is possible to get other types of bonds and little more current, and other indicators that seem more interesting like the Euribor, it is detail here is the definition from the beginning of the positive aspects that the bonds may present.
How do interest rates affect state bonds?
Investment Bonds are simply instruments but can be explained in a somewhat simple way, because the investor has to buy X bond of a certain issue that has a 6 percent coupon, this would mean that the annual earnings through interest would be 60 euros, for every 1,000 euros of nominal value, but that is not all, since interest continues to increase, since next year this same bond will continue to grow and becomes 60 euros per year, but that is not all, since the issuers of new securities generally tend to adapt to the new amounts, since they are on the order of 7 percent, and this makes them more attractive, since they tend to make investors tend to sell the current bond, therefore It should be below the current value, but with a view to acquiring the new one, as you will see, how investment bonds work is really important.
There is a very interesting detail here and it is that if an investor tends to sell the title before the repayment date it will simply run interest rate risk, and this becomes much more complex according to the term of the repayment expiration, the longer The longer term is the risk, as interest rates are usually rising and new issues increase the issuance rates, so changes in the fixed income market are gradually decreasing and cease to be profitable, it is important to have Bear in mind that this has an impact on the performance of the fixed income, in terms of the evolution of the interest rates that are presented, since this makes Investment Bonds a fairly complex issue in the current reality causing it to become highly You need to inform us about how investment bonds work
An important detail to reduce the interest rate is the ideal of hiring some securities that have repayment terms whose main objective is in line with the financial objectives, as this is presented as a relevant aspect of the Investment Bonds, as the bonds tend to be attractive to investors and they would be able to cancel a certain price for our bond, which indicates that it could be above the nominal value, this is one of the details that we must take into account when knowing how the investment bonds
Knowing how investment bonds work keeps us attentive to any eventuality, since inflation expectations are a very relevant detail, since the investment bonus coupons that are canceled with fixed income are nominal over time, so if inflation It would go up, simply the value of such coupons would go down, making this type of coupons no longer profitable.
How to acquire a state bond?
Having knowledge about how investment bonds work is highly relevant, since the purchase of state bonds or public debt presents several channels for which we must be prepared, since Investment Bonds in some cases are not usually the best option. .
- ü A state bond can be purchased at any bank office in Spain.
- ü State bonds can be acquired through the public Treasury website, for this it is only necessary to get to the option “stock purchase and sale service”.
It is good to know that financial institutions tend to offer us more peace of mind, on the other hand through the Bankinter broker we have the option of receiving wide offers about public and private debt issues, since they include national and international, where The most reliable stand out, since in this way the Investment Bonds are presented as a return for the investor. As far as you know, how investment bonds work is usually a rather complex issue in the midst of an economy that currently has many ramifications.
What are the Treasury bills, considering that it is an Investment Bonds?
Knowing how investment bonds work is really an important detail, since the treasury bills are part of it and are fixed income securities that are usually managed through account entries and are issued with an amount of 1,000 euros, which implies that the requests must be by nature greater than multiples greater than 1,000 euros respectively.
What is the profitability of the Treasury Bills?
Being the letters of the Treasury Investment Bonds it is important to be clear that the profitability is usually differentiated in relation to the redemption price and the acquisition price, being a fundamental factor knowing how the investment bonds work, so that we can differentiate every detail , because the amount with which it is always issued is lower than the time of reimbursement.
Today the Treasury issues the Treasury Bills at these deadlines:
- ü Treasury bills at 12 months.
- ü Treasury bills at 9 months.
- ü Treasury bills at 6 months.
- ü Treasury bills at 3 months.
With this we put an end to this article related to Investment Bonds whose purpose has been to explain to you how investment bonds work
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