Bond Market Rules examines 50 of the bond market's most well-known rules and axioms, explaining the fundamentals behind each one, and revealing whether it is valid in today's fixed-income environment. In addition to taking you inside the rules,
Bond Market Rules takes you inside the market itself--revealing everything from exactly what constitutes a bond to how speculators chase equity-style returns in the bond market.
Internationally renowned investment market expert Michael Sheimo's latest addition to his "Rules" series tells you everything you need to know to increase your potential for higher bond income and sidestep the disasters that can be hidden in the details of these seemingly safe investments.
PREFACE
Short chapters based on single concepts, it's the same approach that
worked so well in Stock Market Rules, a popular guide on stock
investing since 1990. This is a great book to read during lunch.
Bond Market Rules is for beginning-to intermediate-level
investors who want to learn or review the basics of investing in bonds.
Prices, price action, interest-rate analysis, fundamental and technical
analysis, new types of bonds (Bradys, DANs, TIPS), tax-exempt bonds,
bonds that increase in face value with inflation, bonds that have a
"survivors' put option": all are explained and examined. Bonds have
changed. They aren't your father's "bearer bonds" anymore, hidden in the
basement.
NEW BENEFITS
Although bonds are not the simple investment they once were, many of the
newer innovations benefit the investor. Even an old standard, the
T-bill, has changed from a $10,000 to a $1000 minimum investment,
thereby making it available to a larger group of investors.
Brady bonds from developing countries have enabled investors to take
advantage of higher foreign yields without extreme risk (Chapter 49).
Direct access notes (DANs), offer the income flexibility of six-month or
monthly payments on bonds, which can be put back to the company at face
value by the investor's estate (Chapter 31). That can be a terrific
advantage if interest rates have risen and the heirs have bills to pay.
Even the U.S. government is trying to be accommodating to the investor's
concerns. Inflation can be the enemy of fixed-income investing. Rising
to this concern are inflation protection bonds (TIPs). When are they a
bargain and when are regular bonds better (Chapter 24)?
STRATEGIES
Income, asset allocation, and defensive investing are just some of the
concepts examined. Strategies like the "ladder" (Chapter 16) make a
wonderful inflation hedge when interest rates rise. A simpler version of
the ladder is the "barbell," which combines some of the advantages of
both short-term and long-term bond investing (Chapter 29). Easier yet
are the Treasury Inflation Protection bonds (TIPs), which are tied to
the Consumer Price Index. But how much does that "protection" cost?
Asset allocation is explored in Chapter 21. What is meant by allocation?
How is it done? What are some variations? The information presented can
enable the investor to choose between an approach suitable for profits
and one suitable for defensive investing.
ANALYSIS
Always check the yield curve before buying bonds (Chapters 3 and 4).
Checking the yield curve will instantly let you know if the longterm
yields are worth the holding period. The curve can also give signals as
to what might happen next with interest rates. Bond and bond market
analyses are discussed in several chapters. Chapters 3, 4, 7, 8, 20, 30,
and others contain analysis -- from the uncomplicated to the detailed.
BOND FUTURES AND OPTIONS
Options trading can be speculative or conservative, and some of the
details are examined in Chapter 16. Although not appropriate for every
investor, some basics of bond futures, hedging, and speculating are
explored in Chapter 23.
DATA
Unless otherwise noted, the data used in this work comes from the
Federal Reserve Bank of St. Louis. Much of their data originates from
the Bureau of Labor Statistics.
When Interest Rates Rise, Bond Prices Fall.
The Coupon Is Not Always the Same as Yield.
Follow the Yield Curve.
Beware the Inverted Yield Curve.
There Are Four Ways to Get a Higher Yield on Bonds.
Utility Stocks--A Higher-Yield Alternative to Bonds.
Long Maturities Have Greater Market Risk.
Short Maturities Have Greater Reinvestment Risk.
Bond Funds Are Not the Same As Bonds.
Buy Bonds That Won't Outlive You.
Invest in Bonds If You Want Steady, Fixed Returns.
Invest in Bonds If Your Risk Profiler is Lower.
Invest in Bonds If You Do Not Want Capital Erosion.
Why T-Bills Can Be Risky.
Know the Bond Options.
Build a Ladder.
Bonds, the Buy-and-Hold Investment.
Bonds Lower Portfolio Risk.
Calls Always Benefit the Issuer.
The Simplest Strategy.
Bond Investing, Is Prudent Asset Allocation.
Pay Yourself First.
Be a Futures Hedger or a Speculator.
Buy Inflation Protection Bonds.
Buy Stocks with Bonds (Convertibles).
Beware the GNMA.
Put Compound Interest to Work with Zeroes.
Understanding the Indexes.
Do the Barbell.
Do Bond Market Analysis.
Check Out the DANs.
Don't Fight the Fed.
Watch the Stock Market.
Look for a Flight to Quality.
Buy "Junk" Bonds for Higher Yield.
Do "Swaps" for Money Now.
You Don't Have to Pay Taxes on Bonds.
Bonds Are Safe If Held to Maturity.
Know the Bond Rating.
Watch the Consumer Price Index.
Insured Municipal Bonds Are Safer.
Watch the Long Bond.
You Can't Trade Bonds Like Stocks.
Bonds Always Mature at Par.
If A Yield Looks Too Good to Be True, It Probably Is.
Beware of Personal Guarantees.
Know the Types of Bonds.
Consider a Managed Futures Account.
Buy Brady Bonds for High Yields.
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