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Bonds
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Type of Yields
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Bond Rating Agencies
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The Yield Curve
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Laddering
Types of Bonds
- Corporate Bonds
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Municipal Bonds
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Asset Backed Securities
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High-Yielding Securities –
Junk Bonds
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Enhanced Trust- Preferreds
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Zero-Coupon Bonds
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STRIPS Bonds
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Internotes
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International Bonds
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Brady Bonds
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Brady Bonds
For young adults, Brady
bonds offer little investment value. They do, however, deserve a paragraph,
for their educational value in resolving the emerging markets’, primarily
Latin America’s, debt crises in the 1980’s.
As background: The major
money center banks lent huge amounts of money to emerging market countries,
particularly in Latin America. The credit was based on the theory that these
countries could just raise taxes to repay their debt. When they defaulted on
their debt (thus proving that the lending practices were flawed to begin
with), treasury secretary Nicholas Brady in 1989 used the concept of
securitizing assets and successfully restructured the loans to these
countries. This allowed the banks to gracefully exit these credits and
helped the emerging market countries to be more fiscally responsible in the
future.
The Brady plan called
for the banks to write off approximately 35% of their loans in exchange for
coupon-bearing U.S. dollar-denominated bonds, collateralized by U.S.
treasury zero-coupon bonds. Brady bonds had a variety of rate options
(fixed, variable, etc.) and maturities ranged from 10 to 30 years. Most of
the bonds have been paid back.
The plan
was extremely successful, President Bush Sr. and Mr. Brady deserve
the credit.
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