Advanced Bond Investing
What is the Yield Curve?
The yield curve is one of the most important concepts in understanding the bond market, but fortunately the yield curve isn’t very complicated once you learn the basics.
Definition of Steepening Yield Curve and Flattening Yield Curve
The changing relationship between short- and long-term bond yields is often referred to as a flattening yield curve or a steepening yield curve. Find out what "flattening" and "steepening" mean, and how the movement of the yield curve relates to economic growth and bond market performance.
What is an Inverted Yield Curve?
Get the plain-English explanation of what an inverted yield curve is, and what an inverted yield curve says about the economy.
What is a “Yield Spread”?
The term “yield spread” is one that you may see used quite frequently – and with good reason. The yield spread is one of the key metrics that bond investors can use to gauge how expensive or cheap a particular bond – or group of bonds – might be. Learn more about yield spreads and how they can help you make better investment decisions.
What is the Default Rate?
Learn what the default rate is, how likely bonds in certain categories are likely to default, and how investors can minimize their exposure to default risk.
Understanding Bond Duration
Duration may be difficult to understand at first, but learning a few simple points can help unlock the mystery of this concept.
The Math Behind Duration
If you're trying to understand how duration works, this paper from the the University of Virginia Darden School of Business will help you get started.
What is the Flight to Quality?
Investors often hear the terms "flight to quality" or "flight to safety." What is the flight to quality, and how does it affect the bond market?
What is a Floating Rate Bond?
Floating rate notes are bonds whose yields adjust with changes in prevailing interest rates. Learn more about the benefits - and pitfalls - of floating rate bonds, and the best way to invest in this market segment.
What Are Mortgage-Backed Securities?
Until the mortgage-backed securities market began to collapse, eventually leading to the near collapse and eventual sale of bond-trading king Bear Stearns, most of the world had never heard of this particular derivative investment. About's guide to Investing for Beginners offers a description of the controversial investment.
What are Commercial Mortgage-Backed Securities (CMBS)?
A commercial mortgage-backed security (CMBS) is a type of fixed-income security that is collateralized by commercial real estate loans. Learn more about how CMBS work, and how individual investors can participate in this market sement.
What are Asset Backed Securities (ABS)?
Asset backed securities, also called ABS, are pools of loans that are packaged and sold as securities – a process known as “securitization”. Learn more about what asset backed securities are and how they can play role in bond portfolios.
What is a Covered Bond? Looking at the Newest Investment in U.S. Bond Markets
The newest addition to the U.S. bond market is a staple of the European debt markets. Covered bonds are similar to the asset-backed securities that led to the credit crisis, but they're supposed to be much safer. But just what, exactly, is a covered bond? And should you buy one?
Collateralized Debt Obligations (CDOs) and the Start of the Credit Crisis
Somewhere in early 2007, one of the more complex and controversial corners of the bond world began to unravel. By March of that year, losses in the collateralized debt obligations (CDOs) market were spreading -- crushing high-risk hedge funds and spreading fear through the fixed-income world. The credit crisis had begun.
What is a Credit Default Swap?
Credit default swaps are the most common form of derivative in the fixed-income market. The swaps are complex investment vehicles that can be used to protect a bond buyer from the risk of default.
Where Can I Buy a Bowie Bond?
Back in 1997, an investment banker named David Pullman created a series of bonds backed by the royalties on music owned by rock star David Bowie. The deal captured the imagination of Wall Street, which has since issued dozens of other bonds that "securitize" intellectual property. The deal also left thousands of fans wondering: Where can I buy a Bowie Bond?
What are Auction Rate Securities?
An Auction Rate Security, or ARS, is a complicated debt instrument in which interest rates are reset on a regular basis through a Dutch Auction. The ARS market has high minimum investment requirements -- and that turned out to be a good thing for average investors. In early 2008, the ARS market collapsed -- leaving institutional investors and wealthy people holding the bag.
What is Opportunity Cost?
In the investment world, “opportunity cost” is the cost of choosing one option over another. Opportunity costs are invisible on your personal balance sheet, but they are a very real consideration when making investment decisions.
Bond Market Data Resources
Finding quality bond market data takes some digging, but there's plenty out there if you know where to look. Here are some of the best free resources on the web for current and historical bond market data: