5 Takeaways from “The Bond Book”

“The Bond Book” by Annette Thau is a must-read for any investor in any asset class. The bond market is much larger than the stock market. You wouldn’t know that by comparing the media coverage of the two.

Bonds are everywhere, in every asset class, government entity, corporation, and mortgage ecosystem. To be a successful investor, you must understand how interest rates affect all bonds.

I read this book to become more knowledgeable about the bond market. The bond market can predict recessions, bull markets, and inflation. I wanted to understand why people say “bond investors are wiser than stock investors.”

There is much to learn about bonds, but the main principle is that interest rates affect yield. Mainly, when interest rates increase, bond prices decrease—and vice versa. From there, you get into more particulars like duration, sectors, and credit quality.

1) Treasuries issued by the US Government are the most important bonds in the market. Investors consider them to be risk-free from default. Therefore they are the safest yield investors can buy.

2) All other bonds receive their yield and price evaluations based on the yield of treasuries. Different types of bonds are municipals, corporates, international, and junk. 

3) If you are a buy-and-hold investor, much of the bond market will be lost on you—especially if you are buying treasuries. If you plan to sell your bond, you have to take into account the loss of principal.

4) The yield-to-maturity calculations consider bond interest reinvestment. This means that the numbers depend on you reinvesting interest at the bond’s yield. It’s similar to dividend reinvestment in stocks. However, this number is pre-calculated for you. Be careful if you plan to spend your interest outside of the markets. 

5) The best way to buy bonds is through the Treasurydirect.gov website. You don’t pay fees, markups, or commissions. You can buy Series “I” Bonds and Treasuries and keep them under one account. 

Most of the bond market caters to massive institutional investors (think pension funds). Individual investors have the best opportunity to invest in bonds through the US Government.

If you reinvest the interest into other high-yield bonds or stocks, buy-and-hold treasury investing can give you significant gains. 

Outside treasuries and municipal bonds, retail investors can diversify their bonds through bonds funds and ETFs. However, it is good to understand how these funds correlate to treasury yields.

Finally, understanding the yield curve can help you predict where bond yields and prices may travel. No one can guess the future, but it is vital to process what information we do have.

This is a massive book and a must-read for all investors. You’ll walk away with a much larger picture than just the stock market. The bond market is the less emotional brother of the stock market. I highly recommend this book if you are serious about becoming a well-rounded investor. 

This link is to a physical product. The link above is to the digital book. Sorry. I get no credit for digital product links.

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