Bonds
It is a financial instrument that is an agreement between a borrower and a lender, under which the borrower raises funds for the implementation of a project through the issue of bonds.
What is a bond?
These securities, also called treasury bills, are usually issued by government agencies.
The bond issuer (borrower) sets the interest rate, which it then pays to the investor. When the bond is redeemed, the investor gets back their original investment. Unlike stocks, bonds are not traded on a central exchange and their market is over-the-counter, making it much larger than the stock market. It is important to note that traders do not buy or sell bonds directly, but only make assumptions about how their value may change over time.
How to trade bonds?
Bond prices are significantly affected by changes in market conditions and economic conditions, with interest rates, yields, and bond ratings being the main factors influencing bond prices.
However, the relationship between bond prices and external economic factors can be quite complex to understand. For example, if inflation causes interest rates to rise, this will increase the interest rate on the bond, which in turn will reduce its yield. As a result, the bond price will fall because it will become less attractive to the original investor. If a trader expects interest rates to rise, he may sell the bond, predicting a decline in its value. In this case, he can profit from the falling bond price.