Bonds & Yield Curves Part 1
Don't be another know-nothing on Bond Basics
Fixed income is suddenly getting a ton of love. After over a decade of a raging stock market and meager interest rates, the worm is turning and everyone is jumping on the bond bandwagon.
But boy oh boy do people not even get the basics.
This stack has hit on bonds previously:
But each of these posts assumed some background knowledge on bonds (but go read them anyways if you haven’t since they have lots of good applicable information.
“Aren’t bonds just boring and simple products?”
Since equities are volatile and, with the invention of ETFs and no commission stock trading, much more accessible to the masses, they are viewed as the complex and sexy investments. Bonds were relegated to being the red-headed step-child of the investment world. People through some allocation to a bond ETF in their 401k and called it a day.
Many people are surprised to learn that in the investment space, bond traders are considered the smart money while equity traders are dumb money. This is because bonds are actually incredibly complex, nonfungible (yes like NFTs - crypto didn’t invent the idea), and come with their own sets of risks and rewards.
In this series, we will go over the basics of a bond, bond calcs, and build up to understanding yield curves. By the end, you will know more than enough to avoid typing nonsense like “If the FED drops rates mortgages will come down”.
And if you don’t understand how that statement is fundamentally flawed, you really need this.