BONDS AND WHAT THEY ARE

BONDS ARE LOANS OR IOUs

Bonds are like a debt and a Bond Fund is basically a Bank. How it works is that you lend your money to a company, the government, council and in the case of USA to a city. They then promise to pay you back in full, with regular interest payments. A council may sell bonds to raise money to build a new town hall, and the government may issue bonds to finance its debts or infrastructure it may want.

With good governments theres safety in bonds as it provides a steady stream of income to the lender. When the stock market becomes too volatile one can use bonds to balance out riskier stock-based investments. But be careful as some bonds are risky although may pay higher dividends and these are called high-yield or “junk” bonds. The best are investment-grade bonds are those the NZ government have to offer as secure.

The longer the bonds are held the better for the investor but when interest rates rise bonds can become less attractive as bond prices fall. If you hold onto your bond until maturity, it doesn’t matter how much the price fluctuates as the interest rate was set when you bought it, and when the term is up, you’ll receive the face value (the money you initially invested) of the bond back. So you see why Mutual Bond Funds can attract a lot of money and are good for many. Bond funds do not have a maturity date & roll over although individual funds do.

But in the case of Greece for instance or Argentina this is not the case as they were bankrupt. Hedge funds& vulture funds in USA bet on Argentina bonds as easy money. Argentina went into default on July 30 2014 after a $539 million bond payment was blocked by a federal judge who said that the country can’t pay any of its exchange bondholders. As there is now many who haven't been paid out if the Judge allows Singer & now Dart to claim then all the rest will want their share as well.These are called Vulture bond seekers who ply on countries in debt for high profits and maybe they have risked more than they bargained for in countries like Argentina. But NZ is different and safer.

2011, Greece gave major haircuts to its long term bond holders and again a debt ridden country that vuture funds wanted to exploit for high returns----that gamble is not paying off as these countries have no money and propped by the IMF. 2018 its no better off.. 

At present, in NZ the yield on NZGB32s sits at 3.8-4%.New Zealand has become a prime destination for global investors in recent years

Governments offering Investors a relatively higher premium would be of no value. The higher premium would attract the Hedge & Vulture Funds as opposed to the lenient pension funds so NZ is careful on hoiw high they go in interest rates.

THE SAFER bonds to invest in

" Invest in mutual bond companies is a risk but in government bonds OK "

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