Bond Indices for Beginners
Learn the basics behind bond indexes
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.
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.
Try: 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.
Try: 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.)
Try: 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.
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