The basics of what a bond is

Think of a bond simply as a type of loan. It is a loan taken out by Governments and companies. When Governments and very large companies want to borrow money they can’t easily go to a bank because of the huge amounts of money involved. So, a bond is a mechanism by which a Government or large corporation borrows money for their needs. The bond is issued for a set period of time. Bonds can be purchased for different lengths of time from short-term, medium-term, and long-term bonds. Short-term bonds are only for a year or two, medium-term bonds are up to 10 years, and long-term bonds are generally 10 years or longer. These bonds have a coupon or yield rate.

Understanding what a yield is on a bond

As an incentive to loan money to the Government or a large company the bond has a yield. The yield is an agreed interest payment on the value of the loan. So, for example, say you purchased a UK bond for £1000 with a yield of 5%, referred to as a coupon, you would receive £50 for each year you held the bond. Then, when the bond expires, you would receive back the original value you purchased the bond for. So, to be clear, the graph below shows a ‘yield curve’. The black dots on the chart show the ‘yields or coupons’ for each bond. The 3YR bond is showing a yield just above 1%. The 7YR bond is showing a yield of just above 2% and the 30YR bond has a yield of just over 3%. The dots are joined together and that creates what is known as the ‘yield curve’.

Chart


Learn more about HYCM

High Risk Investment Warning: Contracts for Difference (‘CFDs’) are complex financial products that are traded on margin. Trading CFDs carries a high degree of risk. It is possible to lose all your capital. These products may not be suitable for everyone and you should ensure that you understand the risks involved. Seek independent expert advice if necessary and speculate only with funds that you can afford to lose. Please think carefully whether such trading suits you, taking into consideration all the relevant circumstances as well as your personal resources. We do not recommend clients posting their entire account balance to meet margin requirements. Clients can minimise their level of exposure by requesting a change in leverage limit. For more information please refer to HYCM’s Risk Disclosure.

Education feed Join Telegram

Editors’ Picks

EUR/USD struggles to defend 1.0200 as sour sentiment teases DXY bulls ahead of US inflation

EUR/USD struggles to defend 1.0200 as sour sentiment teases DXY bulls ahead of US inflation

EUR/USD fades the corrective pullback from 1.0202 around 1.0215 as traders turn cautious ahead of the key US CPI during the initial hour of Wednesday’s Asian session. Also exerting downside pressure on the major currency pair are the economic fears surrounding the Eurozone.

EUR/USD News

GBP/USD displays downside gestures below 1.2060 as risk-off triggers ahead of US Inflation

GBP/USD displays downside gestures below 1.2060 as risk-off triggers ahead of US Inflation

The GBP/USD pair has faced selling pressure around 1.2080 and is likely to display more losses on dropping below the major cushion of 1.2060. On a broader note, the cable has auctioned in a 1.2063-1.2138 range for the previous two trading sessions after a modest rebound from a low near the psychological support of 1.2000.

GBP/USD News

USD/JPY oscillates around 135.00 on a lack of catalyst

USD/JPY oscillates around 135.00 on a lack of catalyst

The USD/JPY is almost flat amidst a calmed North American session ahead of July’s US inflation report, which could shed light on further Federal Reserve tightening in the September meeting.  Long-term, the USD/JPY is neutral-to-upward biased, facing solid resistance at 135.50.

USD/JPY News

Editors’ Picks

AUD/USD bears trying hard to keep reins below 0.7000, US/China inflation eyed

AUD/USD bears trying hard to keep reins below 0.7000, US/China inflation eyed

AUD/USD remains depressed around the intraday low near 0.6955 as sellers keep reins for the second consecutive day ahead of the key US inflation data. Firmer China CPI may offer intermediate help but US inflation is crucial amid strong jobs report, hawkish Fedspeak.

AUD/USD News

EUR/USD struggles to defend 1.0200 as sour sentiment teases DXY bulls ahead of US inflation

EUR/USD struggles to defend 1.0200 as sour sentiment teases DXY bulls ahead of US inflation

EUR/USD fades the corrective pullback from 1.0202 around 1.0215 as traders turn cautious ahead of the key US CPI during the initial hour of Wednesday’s Asian session. Also exerting downside pressure on the major currency pair are the economic fears surrounding the Eurozone.

EUR/USD News

Gold aims to recapture $1,800 as investors trim US Inflation forecasts

Gold aims to recapture $1,800 as investors trim US Inflation forecasts

Gold price is displaying a volatility contraction after printing a fresh monthly high at around $1,800.00 on Tuesday. The precious metal witnessed a decent north-side move on Tuesday and later on turned sideways ahead of US CPI.

Gold News

Crypto Sleeping Giants: Hedera Hashgraph price could shock the world

Crypto Sleeping Giants: Hedera Hashgraph price could shock the world

HBAR price shows a drop in volume amidst the current downtrend. Hedera Hashgraph has the potential to rally towards 2000%. Traders should keep the smart contract alternative token on their watchlists and consider a dollar cost average approach for investing. 

Read more

FXStreet Premium users exceed expectations

FXStreet Premium users exceed expectations

Tap into our 20 years Forex trading experience and get ahead of the markets. Maximize our actionable content, be part of our community, and chat with our experts. Join FXStreet Premium today!

BECOME PREMIUM

RECOMMENDED LESSONS

7 Ways to Avoid Forex Scams

The forex industry is recently seeing more and more scams. Here are 7 ways to avoid losing your money in such scams: Forex scams are becoming frequent. Michael Greenberg reports on luxurious expenses, including a submarine bought from the money taken from forex traders. Here’s another report of a forex fraud. So, how can we avoid falling in such forex scams?

What Are the 10 Fatal Mistakes Traders Make

Trading is exciting. Trading is hard. Trading is extremely hard. Some say that it takes more than 10,000 hours to master. Others believe that trading is the way to quick riches. They might be both wrong. What is important to know that no matter how experienced you are, mistakes will be part of the trading process.

Strategy

Money Management

Psychology