Getting Started With Bonds

A bond's principal amount is its face value -- usually $1000 or some multiple of $1000. Brand new bonds are sold at or near par, or 100 cents on the dollar of face value. Bonds pay lenders interest on the principal, usually twice a year; then, at the end of the term, investors get their principal back. The rate of the interest payments on the principal is known as the coupon.

Since bonds make fixed payments, does that mean their value remains constant? No, for this reason: A bond's market value is also shaped by ever-changing economic conditions. A bond's interest rate doesn't change, but the rates being offered on new bonds do. So if an existing bond's interest rate is higher than the rates available on new bonds of comparable maturity and credit quality, investors will pay more to buy the bond. In this environment, you can sell a bond you bought at par at a premium. When the inverse occurs -- a bond's interest rate is lower than the rates on comparable brand-new bonds -- if you sell the bond the buyer will demand a discount. A bond's yield is its rate of return on a bond on an annualized basis. The price at which you buy a bond determines the yield you get. The less you pay, the higher the yield. The more you pay, the lower the yield.

Getting Into Bonds

TheStreet.com keeps a close eye on the bond market, and you can too by visiting us. If you want to know more about bonds and to pick up some savvy bond-investing strategies, click on the following stories.

Ask Our Pros: Take the Easy Road With Bonds

Bonds Can Corral Your Risk

Two Ways to Analyze Corporate Bonds

Catching the Wave of Municipal Bonds

Emerging-Market Bonds For the Long Run

Building a Do-It-Yourself Bond Portfolio

Primer: Why Bother With Bonds?

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