What is a bond?
A bond is a debt obligation issued by a government (federal, state, or municipal), corporation, or other entity. Most bonds offer regular, scheduled income with relatively low risk, making bond investing attractive to retirees and others living off their investments.
What's the difference between Treasury Bills, Bonds, and Notes?
The difference between bills, notes, and bonds is the amount of time the securities take to reach maturity. A bill generally has a maturity of less than one year, a note ranges anywhere from one to 10 years, and a bond has a maturity of 10 years or more.
What are the tax implications of bonds?
Income from trading Treasury bonds is taxed as part of your federal income, but are exempt at the state and local level. Income from Municipal bond investing is exempt from federal taxes, and are sometimes exempt from state and local taxes if you live in the state where the bond is issued.
What does the credit rating for bonds mean?
The credit rating of bonds is essential to bond investing because it represents the issuer's credit evaluation as rated by Standard & Poors and/or Moody's. A high rating (such as AAA) implies a small chance of default, while a poor rating (such as CCC) is a very risky investment.
What does it mean if a bond is "callable"?
A "call" feature protects the issuer from changes in the prevailing interest rate, allowing the bond to be called back and retired prior to the originally announced maturity date. For example, a bond gives a 7 percent coupon for 5 years, but becomes callable after 2 years. If there's a drop in the market interest rate to 4 percent after 2 years, the issuer might want to call back the bond, and re-issue new bonds at 4 percent.
Are there fixed income securities that protect against inflation?
TIPS, or Treasury Inflation Protected Securities have a feature where the principal value adjusts automatically to inflation. The coupon rate is calculated using the inflation-adjusted face value.
Are there any risks for Certificate of Deposits (CD)?
Certificate of Deposits are very safe investment vehicles with no market risk and are insured by the FDIC for up to $250,000. However, if you have over $250,000 at one bank, the amount might not be covered by insurance. With the wide variety of CD's offered at Firstrade, you can easily make the safest arrangements for your money.
What does "Net Yield Basis" stand for?
"Net Yield Basis" indicates that the commission is already factored into the purchase price. Simply use the Bond Calculator or click to "preview" an order.
Are mark-ups and mark-downs disclosed on fixed income securities transactions?
Yes, all broker-dealers are required to disclose mark-ups and mark-downs on trade confirmations for qualifying corporate, agency and municipal bond transactions.
What is my tax benefit when purchasing a municipal bond?
There are no tax benefits of municipal bonds when purchased within a foreign or tax-advantaged (IRA) account. Please note Firstrade does not accept any municipal bond orders from a foreign or tax-advantaged (IRA) account.
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