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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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STRIPS Bonds
STRIPS Bonds (“separate
trading of registered interest and principal of securities”) - Certified Financial Analysts take an existing
bond and separate (detach) the cash flow components (interest & principal)
and sell them individually to investors. The interest, principal and residual tranches
(slices of a deal)
are sold separately to investors with different investment objectives. The
residual portion is the zero-coupon bond, which is discounted at the
prevailing interest rates. At maturity, the investors get the face (par
value) of the bond. The quoted yield is also the yield to maturity that will
be earned. Strips are available for federal, state, municipal and
corporation debt obligations. Pension funds are a big user of strips, which
offer money managers a predictable, sometimes risk free, way to match the
run off of their assets with their projected pension obligations.
STRIPS are starting to become more popular with retail
investors. Be careful!
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