Discover how bond indices can help you make wise decisions when it comes to purchasing bonds. Bond indexes comprise of a listing of bonds. Professional or institutional investors use these indexes to monitor bonds' performances.

There are many different bond indexes in the marketplace. Some track short or long-term bonds while others are global government and emerging markets indexes. You don’t have to attend school in order to understand bond indices. Use the Internet to educate yourself on bond indices. Here are three ways to obtain bond indices education and training:

1. Become knowledgeable about various bond indices from videos and financial providers' websites.

2. Watch webcasts in order to get information about bond indices.

3. Study guides to learn how to use bond indices help minimize your investment risks.

Action Steps
The best contacts and resources to help you get it done

Learn about the different bond indices from videos and financial providers' educational websites

There are many bond indexes in the bond market. Although you should learn them, it's more important to know what sectors they track. For example, you will want to become familiar with regional bond indexes. This is important if you're looking to purchase bonds from emerging markets. One of the best ways to learn about and purchase these bonds is to study regional bond indices.

I recommend: SuTree has a video that educates you on the Lehman Aggregate Bond Index. This bond index is well-known for tracking taxable-bond funds. Morningstar offers comprehensive bond indices education and training, including white papers and presentations. You can access the bond index directories on its website.

Obtain information about bond indices from watching webcasts

By watching webcasts, you can learn why and how revenue bond indexes are created. You can learn what the bond index tracks. For example, it may track sector bonds, such as Treasury or corporate bonds. You'll be learning how to monitor the bonds' performances.

I recommend: BNet offers webcasts on bond indices education and training. You’ll learn about how the first bond index was created. FINRA also provides webcasts on bond indices. You can learn how to evaluate risks before buying bonds.

Learn from guides how to use bond indices to reduce your investment risks

Learn how professional bond traders and brokers use bond indices to monitor bonds that will fit their their investment objectives. As a result, these help traders and brokers to cut down on their investment risks. They can then focus their time on looking at the quality and duration of bonds. Another way that traders and brokers can curtail their investment risks is by purchasing and selling ETFs (exchange traded funds). ETFs tend to mirror corporate bond and Treasury bond indices.

I recommend: BNY Mellon Asset Management has a guide, A Guide to Bond Index “Flavors”, that you can download from its website. You will get good bond indices education and training in that you will learn how bond indices can help achieve your investment goals. ICI (Investment Company Institute) also has a guide, A Guide to Exchange-Traded Funds, from which you will learn how to use ETFs to track corporate and Treasury bond indices.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Create a database of bond indices so that it's easy to track them. Make sure your database not only contains the bond index name, but the sector it's tracking.

Bond indices are usually developed for monitoring performance and managing portfolios. The bond market plays a crucial role in the financial markets. Internationally, the bond market accounts for more than $40 trillion of the markets' business. The US bond market has an outstanding debt of more than $25 trillion. So if your business has a pension or 401(k) plan, you want to allocate a portion of your portfolio in bonds.

If you’re looking to invest in bonds, bond indices are good leads. You can find them on the Internet, however, in most cases, you won’t be able to trade them. Your next step then is to look for ETFs (exchange traded funds) that mirror these bond indexes, then trade these ETFs. Three bond indices you want to use are the following:

1. Emerging Markets Bond Index for emerging markets.
2. Lehman Aggregate Bond Index for trading bonds in the US.
3. Merrill Lynch High Yield Master II Index for high-yield corporate bonds

Action Steps
The best contacts and resources to help you get it done

Use the Emerging Markets Bond Index for investments in emerging markets

The Emerging Markets Bond Index monitors the total returns for external debt instruments that have been traded in the emerging markets. J.P. Morgan created this index, which is one of the most popular bond indexes. The Emerging Markets Bond Index consists of Eurobonds, loans, and US dollar-dominated Brady bonds.

I recommend: Scottrade allows you to purchase regional bond indexes funds or ETFs. You'll get essential information on this revenue bond index. For one, the bond index charts enable you to see time range, upper and lower indicators, and volume. If there are other regional bond indexes that interest you, TradeKing offers you opportunities to purchase ETFs in extended hours.

Use the Lehman Aggregate Bond Index for trading bonds in the US

Lehman Brothers developed and manage this index. You can purchase regional bond indexes funds or ETFs that track this index. The Lehman Aggregate Bond Index is one of the most widely-used bond indexes. It contains the following securities: mortgage-backed, asset-backed, and corporate and government. In addition, Lehman has other regional bond indices that are customized for European and Asian investors.

I recommend: You can purchase iShares through Barclays to take advantage of the Lehman Aggregate Bond Index. You can view the top holdings, along with the top sectors that make up the bond index. Check State Street SPDRs. This firm sells regional bond indexes funds or ETFs. You’ll have to enroll for this service in order to get information about these revenue bond indexes.

Use the Merrill Lynch High Yield Master II Revenue Bond Index for high-yield corporate bonds

This is one of the most-commonly used revenue bond indexes as well. Merrill Lynch manages this bond index portfolio. Other bond investment firms track the Merrill Lynch High Yield Master II Index and have their bond index portfolios tied to it. If you are looking for high-income and capital appreciation, consider looking at this index.

I recommend: Harbor Funds Distributors Inc. has the High-Yield Bond Fund that mirrors the Merrill Lynch High Yield Master II Index. Harbor Funds provides bond index charts. Summit Mutual Funds also has a Summit High Yield Bond Fund-I that invests in high-yield bonds; gain information about how assets are allocated in equity, fixed income, or cash investments.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Increase your bond index portfolio with tax-free municipal bonds if you're concerned about paying high taxes on your investments.

Investors use bond indices to determine how the overall bond market is doing. They also rely on them to find out how the corporate bond holdings are performing. Bonds play essential roles in both the U.S. and global markets. Governments rely on bonds to finance their projects, such as building schools, roads, or hospitals. Corporations, on the other hand, issue bonds so that they can expand their operations or buy new equipment. Here are a few terms to understand when it comes to bond indices.

Action Steps
The best contacts and resources to help you get it done

Bond indices

Bond indices contain listings of bonds. Investors or bond brokers use them as ways to gauge how the bond market performs over a period of time. Bond indices also consist of convexity, yield and duration. They are broken into different categories, such as corporate bonds, mortgage-backed securities and government bonds.

I recommend: Morningstar has its own bond indices. These indices track both global and domestic markets.

Market capitalization

Market capitalization is a calculation of an economic or corporate size that is equal to the share price multiplied by the shares outstanding of a company. Most bond indices are heavily weighted by the market cap. As a result, less creditworthy issuers that have large amounts of debt make up a greater part of the index than creditworthy issuers.

I recommend: Financial Terms has information on market capitalization.

Bond yield

Bond yield is the return the bondholder will receive on a bond. The bond yield is equal to the coupon price divided by the price. One thing to keep in mind is that bond prices change daily. As the price changes, so does the yield.

I recommend: Investopedia provides comprehensive information on how to calculate bond yields.

J.P. Morgan Global Aggregate Bond Index

J.P. Morgan Global Aggregate Bond Index consists of bonds from developed and emerging countries. This bond index started in November 2008. J.P. Morgan Global Aggregate Bond Index tracks both investment-grade and multi-currency instruments. It represents nine asset classes, including Emerging Markets External Debt, Emerging Market Local Treasuries, U.S. Credit and Euro Credit.

I recommend: To learn more about the J.P. Morgan Global Aggregate Bond Index, click on J.P. Morgan.

Dow Jones Corporate Bond Index

The Dow Jones Corporate Bond Index consists of an equally weighted collection of more than 90 newly issued investment-grade corporate bonds, along with securities that will mature at different times. The balance of this bond index changes every month.

I recommend: Understand more about the Dow Jones Corporate Bond Index at Dow Jones.

High-yield bonds, junk bonds

High-yield bonds are rated lower than the investment grade. Other names for high-yield bonds are junk bonds, non-investment grade bonds or speculative grade bonds. Although they have higher risks of defaulting, high-yield bonds usually pay higher returns. This is why these securities attract investors.

I recommend: State Street Global Advisors offers a high-yield bond index. This index follows the High Yield $200 Million Very Liquid Index (HYVLI).

Bond indexes work in the same manner that equity indices operate. A bond index is comprised of a set number of bonds. The prices of those bonds are tracked, thus giving the price of the overall index. Bond indexes are very important because they set base prices for other financial products in our marketplace such as mortgages.

Take the time to learn the basics associated with bond indices. Learn how they operate, how they are tracked, how to read the yields and most importantly how to integrate them into your business. Here are some resourceful links to get you started. Think of this tutorial as "bond indices for beginners."

1. Learn basic information on bond indices, how they are calculated and arrive at a closing price on a daily basis.

2. Find a bond index directory that tracks many bond indexes throughout the trading day.

3. Learn about different types of bond indexes such as revenue bond indexes.

Action Steps
The best contacts and resources to help you get it done

Educate yourself on how bond indexes are calculated

A bond index consists of a group of bonds that are placed together. The average price of these bonds is then calculated, thus giving the price of the entire index. While that is the simple structure of an index, it can also become more complicated. For instance, certain bond indexes have some bonds weighted heavier than others in the group. This means that some bonds will count more toward the final average than others. Read up on the multitude of ways that bond indices are calculated and configured.

I recommend: Go to the website for Dow Jones. There is an explanation of how their corporate bond index is calculated. FTSE also has an overview about how the Global Bond Index Series is calculated.

Locate bond index directories that cover some of the more popular bond indexes

There are many different types of bond indexes that are commonly followed around the world. Examples of bond indexes are government bond indexes, corporate bond indexes, term indexes and more. Each of these indexes is made up of a group of bonds that fit the description of the index. (For instance, a government bond index follows the prices and yields of government issued bonds.) Take the time to learn about the various bond indexes, how they are weighted and how they are tracked.

I recommend: Go to the website for the Wall St. Journal. This provides an overview of both global and regional bond indices. Morningstar is another quality resource that provides articles and information on large-scale and regional bond indexes as well.

Find out about specific types of bond indexes like revenue bond indexes

There are many different types of bond products on the market. One of the bonds that usually yields a higher return is something called a revenue bond. A revenue bond is usually issued by a government municipality for a project (like a new stadium), but it is not backed by the taxpayer. The bond is backed by the revenue of the project. Because of this greater amount of risk, a higher yield is given to the bond holder. The revenue bond index will track revenue based bonds that mature in the same amount of years. (Such as 10 years, 20 years, 30 years and more.)

I recommend: Go to the website for the financial firm Ehlers and Associates for additional information on revenue bonds. Also the website Speculative Bubble is a great resource for all things financial including learning about bond indexes.