Bonds... Corporate Bonds. (Sexy no?)

Safety and security is a pressing issue now-a-days; when we see even the most rational investors of our life time acting in irrational ways. But where does one focus his investments and still guarantee a great degree of protection while beating the eroding effects of inflation? If your stomach (IE. risk tolerance) is not up to the swings of high-yielding equities (IE. companies that pay handsome dividends, etc...), then bonds are the most logical place to look... or one could simply hide under a rock until the sky is done falling... Unfortunately, most of us don't have that kind of luxury, as time is something we don't have alot of. So now more than ever, investment returns are vastly important to achieve some semblance of our former retirement dreams and aspirations.

Quick Background:
Bond prices and bond yields move in opposite directions. Prices are quoted relative to a par value of 100 - a bonds value at issue. If the bond has a 5% interest coupon, the annual yield is 5%. But if investors bid down the price of the bond in the market, and you buy at say 90, the effective yield is greater than 5%. And if you hold the bond to maturity, you'll get the 100 in principal, on top of the coupon income you've received.

If you read that bond yields have increased, it means that bond prices have declined(and vice-versa). Prices for long-term corporate bonds tend to move alot, since these prices are based on Government bonds plus a spread for greater risk. A company's sales, earnings and other financials also have a big impact. Rating agencies grade bond issuers on their ability to repay (AAA, AA, B, Etc..).

In the current market one sees great opportunities, especially in midterm corporate bonds. In 2006 and 2007 spreads were very tight. Even riskier corporate bonds weren't yielding much more than Government issues. But last fall, corporate bond prices plummeted as the credit crisis worsened. Today, spreads are more rational - they're wider.

Overall it is important to hold on to the bond until maturity to be certain to make money. Even without the glamour of stocks, there's still risk - and excitement in bonds these days.

(PLEASE CLICK ON THE LINK TO MY TEAM'S WEBSITE ON THE RIGHT SIDE OF THIS BLOG-PAGE TO FIND OUT MORE ON SOME OF THE GREAT DEALS ON CORPORATE BONDS. UNDER THE HEADING "PUBLICATIONS: CABA NEWSLETTERS"... CHEERS)

(Some information sourced from The Globe and Mail - R.O.B. 03/2009)