What is a bond?

gecko109

Is it not simply a "stock certificate" of a government? If one were to view state governments as individual companies, and the federal government as a giant company......then along those terms, arent bonds just really stock in those governments? Sure, one could argue that while the value of a stock can fluctuate, a bond promises a guaranteed rate of return. But since that return is denominated in dollars....and the value of dollars also fluctuates....doesnt that mean that the value of the bond then also fluctuates?

The point im trying to make is that if we viewed state and fed government like we do companies, most of them would have gone...or will be heading... into bankruptcy by now. Most people would not buy the stock of a private company that they knew was heading for financial insolvancy....so why do people still buy bonds issued by those governments? Knowing what we do about the U.S. debt level presently.....along with the future obligation debt.....along with larger and larger numbers of people turning to the government for assistance (welfare)....along with the fact that within 5-15 years there will be a historical record number of people in retirement and on SS (boomers)......along with the fact that the rest of the world has stopped buying our debt........why would ANYONE of sane mind purchase any further U.S. debt via bonds?


Im perplexed.

Moxie

I would consider a bond more like a credit card charge rather than a stock certificate.

Interest is paid on bonds and credit card balances. Whereas stocks pay dividends.

KUCH

Bonds are "like" stocks to a company. They do provide some amount of security, but will they keep up with inflation? The government can just print money to back these bonds. Sure we're buying our own bonds.

With that said, I'm not a buyer of bonds. I prefer my investments to have some liquidity, the ability to be moved fairly easily.

1Mike1

You got it. Uncle keeps printing more money to give everyone the warm fuzzy feeling that everything is going great but it's not hard to figure out if you're spending more than you're bringing in that eventually something has to give. It's tough to make a dollar with stocks and bonds so the bankers have resorted to basically making your money vanish and like a fairy tale it just disappears - nobody seems to know where it went so the tax payers are handed the bill to make things right. I have to guess China will sometime feel the finacial pain from heavily investing in the US. Don't get me wrong, I think everyone should be proud of their country but with the way things are and the point we are at it's no wonder people have to ask why you would want to invest in this country.

Steve27

"Is it not simply a "stock certificate" of a government? "

No, bonds are the equivalent of a loan with an associated interest rate, while stock represents actual ownership of a company. Unless the issuer of the bond goes out of business, the repayment with interest is guaranteed; with stock there is no such guarantee and its price/value fluctuates will the perceived value of future earnings. This is why companies sell both stocks and bonds, and why governments can only sell bonds.

CaptHenway

What he said.

roadrunner

BOND = ONE's WORD

If your word can't be trusted, then neither should your bond.

roadrunner