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How to determine investment grade corporate bonds?
Understanding the difference between the stock market and corporate bonds is key before a decision is made towards investment grade corporate bonds. The stock market is traded on Wall Street, whereas most corporate bonds are an electronic or over-the-counter trade. There are a few exceptions to this rule where corporate bonds are exchanged via an actual exchange. While the stock market is much better known, it is small in comparison to the international bond market. If you are interested in investing in corporate bonds, the question arises as to which ones to choose for the best return for you?
The international bond market, also called the global bond market, offers great investment opportunities. The convenience of electronic trading has opened up new windows of investing to people around the world. The doors to investing have also opened to the general public as part of their personal control of their own future. As with any investment, they include low risk to high risk and are traded within two areas: Primary market and Secondary market. The primary market is the place where debt securities are issued by an entities and where people (including the public) can go as lenders. The secondary market is the location where the investors who have purchased these bonds go to sell the bonds and buyers are there to purchase. It is estimated that the international bond market has a value of more than sixty trillion dollars.
Investment in developing countries is considered high risk but can also offer better returns. The most important aspect of investment grade corporate bonds is for the investor to do their homework. For a better risk investment, the company should have a long-term, solid credit rating. Comparing a five-year average interest rate to the average Standard & Poor's and Moody's ratings. The corporate bond should be well above the average for investment consideration. The economy of the country is an excellent gauge. During better economic times investment grade corporate bonds yield excellent rates. However, one should expect the realistic in a lower economic time to only a 1-2 percent. In times where the economy is at its worst, the high risk bonds have a great appeal.
Another important homework factor is general economic trends. In the last year or so, investing in bank and lending corporations have taken a downward turn. The investment in corporate bonds for the lending institutions has been iffy, at best, even if they have a solid credit rating.
If you are considering investing in foreign corporate bonds, the exchange rate is a valuable tool. Additional reads should include financial studies on the general market and the specific corporation in general.
An overall study of the short and long term performance of investment grade corporate bonds can assist in your investing decisions. Corporate bonds should be a portion of your portfolio, but the risk level should be based on your personal situation. High risk can yield high returns but should not be considered if you cannot afford the loss should that occur. As always, a good amount of research can give you the best arena for your investment dollars.
The information supplied in this article is not to be considered as medical advice and is for educational purposes only.
|Bond Investment11 Mar 2010|