Treasury Department. Money raised from the sale of treasuries funds every aspect of government activity. They are subject to federal tax but exempt from state and local taxes. Government Sponsored Enterprise GSEs like Fannie Mae and Freddie Mac issue agency bonds to provide funding for the federal mortgage, education and agricultural lending programs.
These bonds are subject to federal tax , but some are exempt from state and local taxes. States, cities and counties issue municipal bonds to fund local projects. Interest earned on municipal bonds is tax-free at the federal level and often at the state level as well, making them an attractive investment for high-net-worth investors and those seeking tax-free income during retirement. Investors work with their financial advisor to help select bonds that provide income, tax advantages and features that make the most sense for their financial goals.
All bonds carry the risk of default. If a corporate or government bond issuer declares bankruptcy, that means they will likely default on their bond obligations, making it difficult for investors to get their principal back. Bond credit ratings help you understand the default risk involved with your bond investments.
Much like credit bureaus assign you a credit score based on your financial history, the credit rating agencies assess the financial health of bond issuers. Bonds are priced in the secondary market based on their face value, or par. Bonds that are priced above par—higher than face value—are said to trade at a premium, while bonds that are priced below their face value—below par—trade at a discount. Like any other asset, bond prices depend on supply and demand.
But credit ratings and market interest rates play big roles in pricing, too. Consider credit ratings: As noted above, a highly rated, investment grade bond pays a smaller coupon a lower fixed interest rate than a low-rated, below investment grade bond. That smaller coupon means the bond has a lower yield, giving you a lower return on your investment.
But if demand for your highly rated bond suddenly craters, then it would start trading at a discount to par in the market. However, its yield would increase, and buyers would earn more over the life of the bond—because the fixed coupon rate represents a larger portion of a lower purchase price. Changes in market interest rates add to the complexity. As market interest rates rise, bond yields increase as well, depressing bond prices.
But a year later, interest rates rise and the same company issues a new bond with a 5. You invest in bonds by buying new issues, purchasing bonds on the secondary market, or by buying bond mutual funds or exchange traded funds ETFs. When buying new issues and secondary market bonds, investors may have more limited options.
Not all brokerages offer the ability to purchase bonds directly. And understanding bond prices can be tricky for novice investors. Bond mutual funds and ETFs are far easier to access for everyday investors. New Word List Word List. Save This Word! See synonyms for bond on Thesaurus. Compare coordinate bond , covalent bond , hydrogen bond , ionic bond , metallic bond.
Psychology , Animal Behavior. We could talk until we're blue in the face about this quiz on words for the color "blue," but we think you should take the quiz and find out if you're a whiz at these colorful terms. Origin of bond 1 First recorded in —; Middle English noun bond, band, bound; variant of band 3. Bond, link, tie agree in referring to a force or influence that unites people. Bond, however, usually emphasizes the strong and enduring quality of affection, whereas tie may refer more especially to duty, obligation, or responsibility: bonds of memory; Blessed be the tie that binds; family ties.
A link is a definite connection, though a slighter one; it may indicate affection or merely some traceable influence or desultory communication: a close link between friends. What is a basic definition of bond?
Real-life examples : Glue, rope, zip ties, cables, pins, and staples are examples of things used as bonds. Prisoners are often kept in bonds , like chains, handcuffs, and shackles, to prevent them from escaping. Throughout history, people have rebelled against the bonds of tyranny, that is, oppression of a government they think is unfair or unjust. Used in a sentence : We freed the prisoners from their metal bonds.
This sense of bond is also used as a verb to mean to bind things together. Used in a sentence : The welder bonded the steel sheets to each other. Real-life examples : Chemical bonds are further divided into specific kinds of bonds that hold molecules together. Different types of bonds include covalent bonds , ionic bonds , hydrogen bonds , coordinate bonds , and metallic bonds. Used in a sentence : Professor Smith used a model to show us the bonds between atoms in a molecule of ammonia.
Real-life examples : You are connected to your family and friends by a close bond. You may also form close bonds with your pet. Countries that are allies have a close bond and usually promise to help or protect each other. Used in a sentence : John and Paul have a strong bond of friendship and they think of each other as brothers. Used in a sentence : I bonded with my father during the many fishing trips we went on together.
Where does bond come from? Some bonds, such as fidelity bonds, function as insurance agreements, in which the surety promises to pay for financial loss caused by the bad behavior of an obligated person or by some contingency over which the person may have no control. Nglish: Translation of bond for Spanish Speakers. Britannica English: Translation of bond for Arabic Speakers.
Subscribe to America's largest dictionary and get thousands more definitions and advanced search—ad free! Log in Sign Up. Save Word. Definition of bond Entry 1 of 3. Definition of bond Entry 2 of 3. Definition of bond Entry 3 of 3. Synonyms for bond Synonyms: Noun band , bind , bracelet , chain , cuff s , fetter , handcuff s , irons , ligature , manacle s , shackle Synonyms: Verb click , commune , relate Visit the Thesaurus for More.
Examples of bond in a Sentence Noun a daughter's bond with her mother Recent events have helped to strengthen the bonds between our two countries. My roommate and I share a common bond because we both grew up in the Midwest. She has invested most of her money in stocks and bonds. Verb Heat was used to bond the sheets of plastic together.
The poster was bonded to the wall with glue. First Known Use of bond Noun 12th century, in the meaning defined at sense 1 Verb , in the meaning defined at transitive sense 1 Adjective 14th century, in the meaning defined above. Learn More About bond. Time Traveler for bond The first known use of bond was in the 12th century See more words from the same century.
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