The Bond Book, Third Edition: Everything Investors Need to Know About Treasuries, Municipals, GNMAs, Corporates, Zeros, Bond Funds, Money Market Funds, and More
Everything on Treasuries, munis,\ bond funds, and more!\ The bond buyer’s answer book—updated for the new economy\ “As in the first two editions, this third edition of The Bond Book continues to be the ideal\ reference for the individual investor. It has all the necessary details, well explained and\ illustrated without excessive mathematics. In addition to providing this essential content, it\ is extremely well written.”\ —James B. Cloonan, Chairman, American Association of Individual...
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Everything on Treasuries, munis,bond funds, and more!The bond buyer’s answer book—updated for the new economy“As in the first two editions, this third edition of The Bond Boo continues to be the idealreference for the individual investor. It has all the necessary details, well explained andillustrated without excessive mathematics. In addition to providing this essential content, itis extremely well written.”—James B. Cloonan, Chairman, American Association of Individual Investors“Annette Thau makes the bond market interesting, approachable, and clear. As much asinvestors will continue to depend on fixed-income securities during their retirement years,they’ll need an insightful guide that ensures they’re appropriately educated and served.The Bond Book does just that.”—Jeff Ttornejoh, Research Director, U.S. and Canada, Lipper, Thomson Reuters“Not only a practical and easy-to-understand guide for the novice, but also a comprehensivereference for professionals. Annette Thau provides the steps to climb to the top of the bondinvestment ladder. The Bond Book should be a permanent fixture in any investment library!”—Thomas J. Herzfeld, President, Thomas Herzfeld Advisors, Inc.“If the financial crisis of recent years has taught us anything, it’s buyer beware. Fact is, bondscan be just as risky as stocks. That’s why Annette Thau’s new edition of The Bond Book isessential reading for investors who want to know exactly what’s in their portfolios. It alsoserves as an excellent guide for those of us who are getting older and need to diversify intofixed income.”—Jean Gruss, Southwest Florida Editor, Gulf Coast Business Review, andformer Managing Editor, Kiplinger’s Retirement ReportAbout the BookThe financial crisis of 2008 causedmajor disruptions to every sector ofthe bond market and left even the savviestinvestors confused about the safety oftheir investments. To serve these investors andanyone looking to explore opportunities infixed-income investing, former bond analystAnnette Thau builds on the features and authoritythat made the first two editions bestsellersin the thoroughly revised, updated, andexpanded third edition of The Bond Book.This is a one-stop resource for both seasonedbond investors looking for the latest informationon the fixed-income market and equitiesinvestors planning to diversify their holdings.Writing in plain English, Thau presentscutting-edge strategies for making the bestbond-investing decisions, while explaininghow to assess risks and opportunities. She alsoincludes up-to-date listings of online resourceswith bond prices and other information.Look to this all-in-one guide for information onsuch critical topics as: Buying individual bonds or bond funds The ins and outs of open-end funds,closed-end funds, and exchangetradedfunds (ETFs) The new landscape for municipal bonds:the changed rating scales, the neardemise of bond insurance, andBuild America Bonds (BABs) The safest bond funds Junk bonds (and emerging market bonds) Buying Treasuries without payinga commissionFrom how bonds work to how to buy and sellthem to what to expect from them, The BondBook, third edition, is a must-read for individualinvestors and financial advisers who wantto enhance the fixed-income allocation of theirportfolios.
PrefaceAcknowledgmentsPART ONE THE BASIC BASICS 1Chapter 1 The Life of a Bond 3First, What is a Bond? 3How Bonds Are Issued and Traded 3Key Terms for Bonds 4Chapter 2 The Bond Market: An Overview 7The Bond Market: An Overview 7Bond Pricing: Markups and Commissions 8How Bonds Are Sold: Dealers, Brokers, and Electronic Platforms 11Terms Used in Buying, Selling, and Discussing Bonds 17Chapter 3 Volatility: Why Bond Prices Go Up and Down 25Interest Rate Risk, or a Tale of Principal Risk 25Credit Ratings: How Credit Quality Affects the Value of Your Bonds 31A Short History of Interest Rates 43The Federal Reserve and Interest Rates 48Summary 50Chapter 4 How Much Will I Earn, or Basic Bond Math 51Bond Cash Flows 51The Many Meanings of Yield 55Total Return 62Duration and Bond Price Volatility 65Summary 71Chapter 5 What You Need to Know before Buying Bonds 73The Bond Market in the Financial Press and on the Internet 73The Treasury Market 74"Yield Spreads" and Benchmarks 81Investinginbonds.com, FINRA.org/marketdata and EMMA.msrb.org 85Summary 94PART TWO INDIVIDUAL SECURITIES 97Chapter 6 Treasuries, Savings Bonds, and Federal Agency Paper 99What is Unique about Treasuries? 100Treasury Bills, Notes, and Bonds 102Inflation-Indexed Securities 105Buying Treasuries: TreasuryDirect 110Zero Coupon Bonds 112U.S. Savings Bonds 117Federal Agencies 124Summary 126Chapter 7 Municipal Bonds 129What is Unique about Municipal Bonds? 129Should I Buy Munis? (or, Taxable-Equivalent Yield) 130Credit Quality: General Obligation versus Revenue Bonds 133The Rise and Fall of Bond Insurance 136"Recalibrations" of Municipal Bond Ratings 139Municipal Bond Pricing 147Shopping for Municipal Bonds Using the Internet 149Selecting Municipal Bonds 165Summary 169Additional References 170Appendix: The New York City Default 170Chapter 8 Corporate Bonds 173What is Unique about Corporate Bonds? 173Risk Factors of Corporate Bonds 175Corporate Bonds with Special Features 178Junk Bonds 181Shopping for Corporate Bonds Using the Internet 186Summary 202Chapter 9 Mortgage-Backed Securities 205Why GNMAs Are Unique 206How Prepayments Affect GNMA Cash Flows 211The Vocabulary of GNMA Returns 213CMOs and Other Sons of GNMA 224Agency Backing of Mortgage-Backed Securities: Ginnie, Fannie, and Freddie 229Collateralized Debt Obligations (CDOs) and Collateralized Debt Swaps (CDSs) 232The Financial Crisis: 2007-2008 235Current State of the Mortgage-Backed and Asset-Backed Securities Market 236Summary 239Additional References 241Chapter 10 International Bonds 243The International Bond Market: An Overview 244Currency Risk 248Emerging Markets Debt: Brady Bonds 250Buying Individual International Bonds 254Is There a Case for Investing in International Bonds? 260Obtaining Information on International Bonds 261Summary 262PART THREE INVESTING THROUGH FUNDS 263Chapter 11 Bond Mutual Funds: An Overview 265Differences between Bond Funds and Individual Bonds 265How Much Will I Earn? 267The Costs of Investing in Bond Funds 273Why the NAV of Your Fund Will Go Up and Down 277Selecting, Buying, and Monitoring Bond Funds 285Sources of Information Concerning Bond Funds 288Taxes and Bond Funds 297Summary 299Chapter 12 Money Market Funds and Tax-Exempt Bond Funds 301Money Market Funds 301Bond Funds Whose Price Goes Up and Down: "Plain Vanilla" and More Speculative Funds 310Municipal Bond Funds 314Summary 324Chapter 13 Taxable Bond Funds 327Domestic "Plain Vanilla" Taxable Bond Funds 328Treasury Inflation Protected Securities Funds 336GNMA (and Other Mortgage) Funds 339More Speculative Funds 341Miscellaneous Funds 354Summary 358Chapter 14 Closed-End Bond Funds, Exchange-Traded Funds (ETFs), and Unit Investment Trusts 361Closed-End Bond Funds 361Summary: Closed-End Funds 372Sources of Information on CEFs 373Exchange-Traded Funds 374Advantages and Disadvantages of Bond ETFs 385Summary: Exchange-Traded Funds 390Unit Investment Trusts 392Summary: Unit Investment Trusts 394PART FOUR MANAGEMENT OF BOND PORTFOLIOS AND ASSET ALLOCATION 395Chapter 15 Management of Bond Portfolios 397When Will I Need the Money? 398Portfolio Structures 399Finding Attractive Buy Points 401Swaps 405Managing a Bond Portfolio for Total Return 407Chapter 16 Portfolio Allocation 411Portfolio Allocation 411Asset Allocation 413The Case for Bonds Revisited 414The Current Environment and the Bond Market 415Conclusion 419Index 421
