Short Term Fixed Rate Bonds

Fixed rate bonds have the main basis in its fixed profit. When somebody buys particular incorporated bond he in fact buys a part of this organization's debt. This debt is offered with its peculiarities concerning regular pays, the main sum of the debt and the term of the bond completeness.

There is another idea to know about the bond interest rate risk. The price of bonds is invertedly connected with interest rate. If the interest rate grows, the price of bonds decreases and this happens contrariwise either. So you should be aware of this concept.

We can define several major causes why short-term bonds are exposed to lessened interest rate risk than long-term securities. First of all we can face a big possibility that interest rates will grow in a long-term time span than in a short-term and consequently badly influence the bonds price.

Buying long-term bonds the risk is considerable and people who purchase these bonds have an opportunity to sell before the completeness with a much lessened market price if they need to sell these bonds. If you buy these bonds the risk is not as big according to the absence of rate inconstancy at this period of time.

Short-term bonds offer the opportunity to keep them in a simple way until the maturity time. In this case the investor might not be nervous about the influence of rates' fluctuations in the bonds' price. Short-term bonds work less time in comparison with long-term bonds.

The idea of longer work of bonds is not easy to interpret but it can be understood as the duration of time where the interest rate fluctuations will influence your bonds. For instance your rate grows by 0.35 percent.

If your bonds has one coupon paying until completeness will pay according to the lessened price by 0.35 percent. It is for solely one coupon paying. If the bond have a lot of coupon pays will be offer lessened paying for a long time span.



By Nickolay Bokhonok
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