A bond is a fixed income instrument that represents a loan made by an investor to a borrower.It is a two types
1.Corporate bond:-
A corporate bond is a debt security issued by a corporation to raise capital for various business purposes, like expanding operations, funding projects, or paying off existing debt. When you buy a corporate bond, you’re lending money to the company in exchange for regular interest payments (called the coupon) and the return of the principal amount when the bond matures.
Unlike government bonds, corporate bonds are issued by private companies, which means they come with more risk because the company could potentially default (fail to repay the bond). The risk level depends on the financial health of the company. To compensate for this additional risk, corporate bonds often offer higher interest rates than government bonds.
2.Government bond:-
A government bond is a type of debt security issued by a government to raise funds for various public expenditures, such as infrastructure, social programs, or debt repayment. When you buy a government bond, you’re essentially lending money to the government. In return, the government agrees to pay you interest at regular intervals (known as the coupon), and then repay the principal (the amount you invested) when the bond matures, which could be several years down the line.
Government bonds are generally considered low-risk because they are backed by the government’s credit
what are bonds yields ?
Bond yields means return an investor realizes on a bond and effective rate of return that a bond earns but the rate of return is not fixed it changes with the price of the bond.
Coupon payment in bond
Suppose the value of a 10 years G-sec is Rs 100 and its coupon payment rs 10, it means buyers of this bond will give the government rs .100, in return the government will pay
him rs 10 (the coupon payment ) every year for the next 10 years.After 10 yeras buyer will also get rs.100 from the government in return of the bond.
Why do bond yields go up and down?
Now suppose the GDP of the economy is going down and share market is plunging in this case investor will pull out their money from equity market and invest in safer instrument
like government bonds Because of this ,the demand for government bond increases & the bond prices go up.Since the demand for bond has increased the person who has
government bond of rs .100 will sell it for more than rs.100
Why the us govt bond yields falling sharply ?
The global economy has been slowing down from last 2 years and some of the biggest economies are either growing at a slower rate US &China or actually contracting
germany