Getting involved in the financial markets does not mean getting crazy with your money. Sometimes it can mean getting into is with a very careful and conservative plan to make money. While not every market has that reputation, the bond market is the bastion of super conservative investors.
Trading treasury bonds is an undervalued way to enter the market, because it is rather hard for newbies to really understand. The learning curve is quite steep, so you want to spend your time getting to really know the nuances of the situation before you jump in headfirst. That is good advice for any investing or trading situation, but especially so when it comes to bonds and treasury notes.
A bond is, essentially, a loan. An institution, such as a government agency or even a corporation can borrow money from the citizens. That creates a bond. If you are a tax paying citizen you have issued a loan to a government. You may not exactly know it, but you have. Once the money is hand, the institution agrees to pay back interest rates at an agreed upon schedule. You may have heard about a bond maturing. Once a bond reaches a maturity date, that is the date that the bondholder has to pay back the face value of the loan.
As with any type of debt, not every agency, institution or company is created equal when it comes to paying up. There are credit rating agencies devoted to the bond market, which determine how fit a particular entity is as a bond borrower. They grade each bond borrower. Investors or traders in the bond market should get to know these agencies very well if they want to make money in the bond market.
For example, if you paid $200,000 for a 30-year US Treasury bond with a coupon rate of 6%, you can expect to get about $12,000 a year from the interest and then get the $200,000 back when the bond reaches maturity.
When you are looking to get involved with bonds and treasury notes, you need to educate yourself on the ins and outs of that market. That requires a healthy understanding of the need for risk management. Even though the world of treasury bonds seemingly is the most conservative and risk-averse avenue of investing, you need to be sure that you are keeping your risk under control. You need to be aware of what countries are in good economic shape and which countries are headed for a recession or rough economic times.
Not every treasury bond is created equal. The United States government is a pretty safe bet, but other countries might not be.And you don’t even need to be working globally to be active in the treasury markets. You could be trading the debt of city and state governments. Local governments borrow from financial institutions and their citizens all the time. Which means that their debt holdings are eligible to be bought and sold on the bond market. Be wary of bonds from cities that have defaulted before. There could be money to be made in junk bonds, but the risk is high and the reward may not be worth it.
When you get into the world of investing and trading, you want to be sure that you have a reputable online broker to work with and that you are as educated as possible about the markets that you will trade in.
Join the Thousandaire newsletter
Subscribe to get our latest content by email.