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Bonds

 - Type of Yields

 - Bond Rating Agencies

 - The Yield Curve

 - Laddering

Types of Bonds
 - Corporate Bonds

 - Municipal Bonds

 - Asset Backed Securities

 - High-Yielding Securities –
   Junk Bonds

 - Enhanced Trust- Preferreds

 - Zero-Coupon Bonds

 - STRIPS Bonds

 - Internotes

 - International Bonds

 - Brady Bonds

 

 


Type of Yields

The yield is the annual amount received from an investment, expressed as a percentage. The typical kinds of yields used by investors are:

·        Coupon Rate – The stated annual interest paid on a bond, expressed as a percentage of par value.

·        Current Yield – The annual interest payout on the bond, expressed as a percentage of the current market value.  

·        Yield-to-Maturity (YTM) – The all-in interest rate earned on the bond, incorporating both the annual interest paid, as well as adjustments for any premiums or discounts realized from the purchase. It’s the interest rate used to discount the cash flows.  The YTM calculation assumes the bond will be held to maturity.

·        Yield-to-Call (YTC) – The all-in interest rate earned on the bond that is held to its call date, using the bond’s stated call price (call premium), and expressed as a percentage.

·        Yield-to-Put (YTP) – The all-in interest rate if held to the bond’s put date.

·        Yield-to-Worst (YTW) – Lowest of the YTM or YTC calculations. It’s used by conservative investors as an estimate of the expected yield. It assumes the worst possible scheduled scenario for the repayment of the bonds, and considers all the possible call date options.  

·        Tax Equivalent Yield (TEY) – The yield that a taxable bond would have to pay to be equivalent to a tax-free bond

As we move through the subject of bonds, you will find that there are multiple market factors that influence bond rates. The base rate always starts with a secure market rate; the rate is then increased as the level of risk increases. Some of the typical risk factors that affect the rate are the credit worthiness of the issuer and the terms of repayment.

 

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