ALL ABOUT BONDS, AND BOND ETFs

335 Pages·2008·3.27 MB·English

ALL ABOUT BONDS,
BOND MUTUAL FUNDS,
AND BOND ETFs
O T H E R T I T L E S I N T H E
“A L L A B O U T. . .” S E R I E S
All About Stock Market Strategies
by David Brown and Kassandra Bentley
All About Technical Analysis
by Constance Brown
All About Derivatives
by Michael Durbin
All About Investing
by Esmé Faerber
All About Asset Allocation
by Richard A. Ferri
All About Index Funds
by Richard A. Ferri
All About Hedge Funds
by Robert A. Jaeger
All About Market Timing
by Les Masonson
All About Options, 3rd edition
by Thomas A. McCafferty
All About Dividend Investing
by Don Schreiber and Gary E. Stroik
All About Commodities
by Russell R. Wasendorf
All About Futures
by Russell R. Wasendorf
All About Stocks, 3rd edition
by Esmé Faerber
All About Exchange Traded Funds
by Archie Richards, Jr.
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ALL ABOUT BONDS,
BOND MUTUAL FUNDS,
AND BOND ETFs
Third Edition
ESME´ FAERBER
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All investing concepts, ideas, strategies, methods, etc. in this book are intended for educational
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are advised to consult a financial professional before investing.
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C O N T E N T S
Preface ix
Acknowledgments ix
Chapter 1
What Bonds Can Do for You and Why You Should Consider
Investing in Them 1
Chapter 2
Characteristics of Bonds 17
Chapter 3
Risks of Bonds 31
Chapter 4
Yield and Price 41
Chapter 5
Duration and Convexity 55
Chapter 6
The Economy and the Bond Markets 67
Chapter 7
Money Market Securities 91
Chapter 8
Treasury Securities 113
Chapter 9
Government Agency and Pass-Through Securities 139
Chapter 10
Corporate Bonds 167
Chapter 11
Municipal Bonds 199
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viii CONTENTS
Chapter 12
Convertible Bonds 227
Chapter 13
Zero Coupon Bonds and Zero Coupon Mutual Funds 255
Chapter 14
International and Emerging Market Debt 273
Chapter 15
Closed-End Funds 289
Chapter 16
Portfolio Management and Evaluation 303
Index 323
P R E FA C E
This third edition includes information to assist bond investors to
become more knowledgeable about their investments. Among the
many changes to this edition are new chapters on foreign and
emerging market debt, how to use duration and convexity concepts,
and the inclusion of investing in bond exchange traded funds. Each
chapter includes many new sections to provide both beginning and
sophisticated bond investors with the tools to make more informed
bond investments. Bond exchange traded funds are compared with
bond mutual funds and investing in individual bonds.
The early chapters present information on the characteristics of
bonds with the purpose of providing readers with an understand-
ing of the workings of a bond, and their performance with regard to
risk and return. The following chapters present the different types
of bonds (Treasuries, government agency bonds, GNMA, FNMA,
collateralized mortgage obligations, municipal bonds, corporate
bonds, convertible bonds, zero coupon bonds, and foreign bonds)
along with a comparison of the corresponding mutual funds and
bond exchange traded funds. These chapters provide readers with
the information to make their choices as to whether to invest in indi-
vidual bonds, or bond mutual funds, or bond exchange traded
funds. The last chapter provides the information to manage a bond
portfolio.
As a more informed investor, it is easier for you to make better
decisions regarding your bond investments.
ACKNOWLEDGMENTS
Many people facilitated the preparation of this book, and I am
grateful for their assistance.
My husband, Eric, and our children, Jennifer and Michael,
deserve a special note of thanks for their continued support and
patience.
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