Excerpt from: Understanding Spread Betting
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| February 24, 2009 | | Understanding government and corporate bonds for investing and spread betting | Whether you are investing or planning on placing spread bets, it helps to understand the financial instrument that you are dealing with. Indeed, you will do much better when you know a little bit about how the financial instrument works.
Right now, one of the more popular investment vehicles is the bond.
Government v. corporate bonds
Bonds are actually loans. When you invest in bonds, you are investing in debt. You receive interest payments regularly, and when the bond is up (in 2, 5, 10, 15, 20 or 30 years), you get the face value back. The two main types of bonds you are likely to run into are government and corporate bonds.
Government bonds are considered the height of "safety" (even though no investment can truly be safe), since they are backed by governments. U.S. Treasury bonds, for example, are often considered the safest investments in the world (there is a risk of default and loss, however).
Solid, developed countries, including the U.K., the European Union and Japan, all issue bonds with reasonably good ratings. Additionally, countries within the Europe, such as Germany, France, Spain and others, issue their own bonds.
You can also find bonds from emerging market countries. Their yields are usually higher, but there is a greater risk that they will default, leaving you with only the interest that has been paid and without the face value.
Corporate bonds are those issued by companies in order to expand their capital base. Until the recent downturn, corporate bonds were considered as safe as government bonds. Now, however, there are concerns that some companies may default on their debt.
With promise of economic stimulus, though, an pledges to aid companies with their capital needs, corporate bonds are becoming somewhat popular again.
In the U.S., there is also the possibility of investing in municipal bonds, which consist of debt from city, county and state governments.
 | Topic Tags: bond investing, corporate bonds, government bonds, municipal bonds, placing spread bets, spread bets, spread betting, spread betting bonds | |
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