Giles Coghlan LLB, Lth, MA
Financial Source
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’.
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Editors’ Picks
EUR/USD faces next resistance near 1.1930
EUR/USD has surrendered its earlier intraday advance on Thursday and is now hovering uncomfortably around the 1.1860 region amid modest gains in the US Dolla. Moving forward, markets are exoected to closely follow Friday’s release of US CPI data.
GBP/USD change course, nears 1.3600
GBP/USD gives away its daily gains and recedes toward the low-1.3600s on Thursday. Indeed, Cable now struggles to regain some upside traction on the back of the sudden bout of buying interest in the Greenback. In the meantime, investors continue to assess a string of underwhelming UK data releases released earlier in the day.
USD/JPY consolidates around 153.00 favoured by lower Fed easing bets
USD/JPY steadies around 153.00 after hitting two-week lows at 152.25. A strong US Nonfarm Payrolls report provided some support for the US Dollar on Wednesday. The Yen remains on track for a 2.6% weekly rally, boosted by Takaichi's victory at Sunday's elections.
Editors’ Picks
AUD/USD: Some profit-taking should not be ruled out
AUD/USD has quickly faded Wednesday’s strong advance despite climbing to new multi-year highs around 0.7150 earlier on Thursday. The pair’s decline comes amid a marginal uptick in the US Dollar, while investors gear up for US CPI data and relevant Chinese releases on Friday.
EUR/USD faces next resistance near 1.1930
EUR/USD has surrendered its earlier intraday advance on Thursday and is now hovering uncomfortably around the 1.1860 region amid modest gains in the US Dolla. Moving forward, markets are exoected to closely follow Friday’s release of US CPI data.
Gold plunges on sudden US Dollar demand
Gold drops markedly on Thursday, challenging the $4,900 mark per troy ounce following a firm bounce in the US Dollar and amid a steep sell-off on Wall Street, with losses led by the tech and housing sectors.
Ripple collaborates with Aviva Investors to tokenize funds as XRP interest declines
Ripple (XRP) exhibits subtle recovery signs, trading slightly above $1.40 at the time of writing on Thursday, as crypto prices broadly edge higher. Despite the metered uptick, risk-off sentiment remains a concern across the crypto market, as retail and institutional interest dwindle.
A tale of two labour markets: Headline strength masks underlying weakness
Undoubtedly, yesterday’s delayed US January jobs report delivered a strong headline – one that surpassed most estimates. However, optimism quickly faded amid sobering benchmark revisions.
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