ILong-term bonds usually produce slightly higher yields for two reasons. A 32 percent yield may look very attractive at a time when money is quite plentiful and it is not necessary to issue bonds carrying high rates in order to attract investment capital, but it may lose its attractiveness when money has become scarce, so that many 42 percent bonds are available.
IThe holder of the 32 percent bond is then faced with a problem. The fluctuation in the prevailing rate of interest is perhaps the most important item that influences bond values. In some cases, bond issues may actually be postponed because of this condition.
IAs a guide to the purchase of bonds, there are available what are known as “bond ratings.”
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