can you please tell me, why do people buy bonds from other people and not from the government directly as soon as they're issued by the government? I mean, they would obviously trade at a higher market price when they are sold by another person than issued by the goverment
Thanks. Yeah there are a lot of bad teachers out there. The advantage with me is as soon as you get bored you can switch me off. I wish I'd been able to do that back at college all those years ago.
You're a great guy for doing this. It's difficult to take in what is said in class all the time and furthermore understand what the book is saying. I wish publishers would understand that there is a simple way to explain this kind of stuff and that they'd be doing the public a service speaking in such a way. Nobody is impressed reading text they can't understand or for that matter, using words that are ancient or sentences that sound like old english. So great work. You're helping me through my core classes!
Thank you very very much. My biggest fear is that you get bored with this and stop!! you should know that when we wake up, the first thing we do is check if you posted a new video!! so please carry on!!!!!!! you make all concepts easy. its a God given talent you have!!!! ur the lionel messi of finance!!!!
I'm so happy I made productive decisions about my finances that changed my life forever,hoping to retire next year... Investment should always be on any creative man's heart for success in life.
I agree with you and believe that the secret to financial stability is having the right investment ideas to enable you earn more money, I don't know who agrees with me but either way I recommend real estate or crypto and stocks.
Yeah!! It would be more beneficial and yield more profit if you actually trade on cryptocurrency, I've been trading since the dip, I've made so much profit trading.
trading is easier with proper guidance, especially from a professional, Newbies who are not aware of how crypto truly works and wish to make profits from it, I would advise to invest with a professional like Fergus waylen, It helps secure and minimize the possibilities of losses.
Tim, thaks for taking time and wffort to share these informative videos. I have been going through your other videos aswell. Thanks for providing insight on some financial jargons and what they mean in simple understandable language. Highly recommended videos for someone to understand whats going on in the present market.
Bonds can be quite complex. Also, as a general rule of thumb. As you get older, you will likely move more of your assets into bonds. They are not really a young persons investment of choice.
I love this channel. I just wish the older vids could be updated to improve video and (more importantly) audio quality. Thank you for sharing the wealth (of information) that you have! 😃
So the Fed buys bonds, which also pushes the price of bonds up as it decreases supply, which lowers the YTM, making them less attractive. Is that correct?
Will all the different possible types and options of bonds, how is it possible to make a fluid market for them? How are they traded? Are they standardised? Is there a limited number of bonds types?
at the end of the four years you will get paid 100 dollars- thats the fixed value of the bond. 113 is the market price. each year you get paid the interest which in this video is 5% or 5$.
Thanks for the question, MrDadebitch. I was thinking the same thing. And thank you Commodore for explaining it because Tim Bennett did not explain that this bond was being resold.
Great video. Watching this in the context of Q/E. So a government that needs cash will issue government bonds to take money out of circulation/economy - lowering inflation. Then if inflation gets too low it will undergo some Q/E - creating digital money to buy up the government bonds it issued previously - freeing up money to be spent elsewhere e.g. corporate bonds and hopefully boost investment and inflation. Did i get that right? Thanks.
So a government that needs cash will issue government bonds to take money out of circulation No. The FED auctions Treasury bonds. Say $1 trillion. Proceeds from the auction are transferred to the Treasury. The Treasury uses the proceeds to pay the obligations of the federal government. Once paid, the money supply increases by $1 trillion.
The kind of information they won’t explain in school. Never took a class for this information but as a day trader I’m educating myself on other information around the market. Better to learn when you have a genuine interest than by being forced in some class that only wants to weed you out.
I have a question. Lets say BOND-A 10% coupon start in 2014 and mature in 2016 @market price 100 when they first open. In 2015, the market price is $110. And I bought the bond @$110. When it matures in 2016. Do I get paid back all my capital, $110? or I get back the money based on market price at maturity, which is $100.
Sir I would be grateful if you would explain the principal debt instruments for raising finance in international financial markets... Please make it sooner as my exams are nearing by this month end
The "interest" is paid annually as a coupon. The 5 pound per year "coupon" is like 5% interest on the original 100 pound value of this bond. At the maturity date you get back the value of the bond, which in this case is a flat 100 pounds. No additional interest would be paid at the time of the bond's maturity.
+malsahth No. You bought the bond for £113. You make 5% interest off the original £100 for 4 yrs. That's 5 x 4 = £20. Plus of course the £100 given back to you at the end of 4 years (maturity date) making £120. But then you have to subtract the £13 extra that you paid for the bond. So £120 - £113 = £7. You make a profit of £7 on a £113 investment after 4 years.
theres something i don't understand: what happens if you buy a countries bond a the country goes default on year lets say 2016 but bond mature at year 2020 and the country recovers from default by that time will the country pay the loan or since it went on default on the period from when you bought the bonds to age of maturity then it won't pay ? im liking the Venezuela bonds
Christian, government bonds are considered to never default (at least in the Western world), so if you're asking in terms of the UK govt or American govt, that wouldn't be an issue. If it was some other borrower who defaulted, it will pay you back no matter what. However, the amount you receive may be lowered since it defaulted. Even if it rose, the rise would have to equal or exceed the default dip so as to pay you back your true amount.
Meggi Stimmler Sovereign nations can default on their debt. Generally what will happen first is some sort of debt restructuring to lower and/or extend the total amount to avoid a complete default.
Your comment towards the end regarding QE and central banks was very interesting - thought provoking even. Encouraging money to get out of bonds and go somewhere else. Would you care to comment on this further, a decade later, regarding the current financial climate? Is it intended or do the central banks simply have an arm caught between a rock (depression) and a hard place (inflation) with nothing but a rusty spork to free themselves (QE)? I am starting to think that it is intended. I foresee a massive ‘reallocation of capital’ to truly bring us in to the 21st century. Perhaps I’m just a nut job but nonetheless your comment on the above would be greatly appreciated. Best regards, S*
Thanks. But inflation takes its toll. Bond issuance is one of Treasury’s sources of money. A nation that needs more money than it has looks to its Treasury to get that excess. The supply of money for bond issuance and entitlement programs and wars and other things increases as the demand increases. So whether it’s bond issuance or spending without bond issuance, the supply of money increases (inflates). So the yield on a fixed treasury reduces as inflation eats away at the par value of the currency. Is the “real” % yield, accounting for inflation simply a reduction of the coupon rate minus the annual discount rate minus the inflation rate?
i don't know if i'm being really dense. at the end of 4 years you should have $120 right? $5x4years + $100par = $120 which is $7 return. so how is that 1.55%?? maybe i'm looking at this too simplistically.
Why would the market price rise beyond the nominal price + 5%. Why would an investor buy a government bond at a price of 113 pounds if he would get only 105 in yield?
Bond prices rise and fall for the same reason that the price of anything rises and falls - supply and demand. Bond prices are high (for example, 113) when demand for bonds is high - typically, during a bear market in stocks. Yields, of course, move in the opposite direction. So, if there was a stock market crash and everyone piled into bonds ("flight to safety", "flight to quality"), bonds become more expensive for the investor (lender) and debt becomes cheaper for the borrower - in other words, prices rise, yields fall. The reverse occurs during a bull market in stocks - debtors must reduce bond prices and increase coupons in order to attract debt capital.
Also, the buyer would get $5/year until maturity. You would never buy a bond to lose money. In this example, the maturity was 4 years after purchasing the treasury - so a total yield of $120.
The Common Sense Glass Steagall Act and Pre-1997 Strict Banking Regulations are to be Reinstated to prevent the racketeering of mortgage Ponzi schemes.
...........What about figuring in the "Rate of Inflation, .....and also, Taxes?!.... How bad does either of these things destroy One's "ACTUAL "Rate of Return"?!....
9 years later and STILL the best explanation on you tube! - thank you!!!
can you please tell me, why do people buy bonds from other people and not from the government directly as soon as they're issued by the government? I mean, they would obviously trade at a higher market price when they are sold by another person than issued by the goverment
@@dhruvbhardwaj5406 Convenience, I would assume
Government does not default payment
2023 US TBills 5.5% yield.
2023 Japan finally raise to 0.5% yield for YCC.
Yeah this video still worthy to unferstand the basics.
thank you for this video, before this, the only Bond i knew was James.
Jmagnum8989 the only bonds I know... are the bonds between Naruto and Sasuke
+Jmagnum8989 man you cracked my limbs alilo but honestly before this I only knew were Off jail bonds
I'm shaken, not stirred
🤦🏼♂️😂😂😂😂😂
😂😂😂
Thanks. Yeah there are a lot of bad teachers out there. The advantage with me is as soon as you get bored you can switch me off. I wish I'd been able to do that back at college all those years ago.
Hahaha you're great thank you so much, very informative
We need more teachers like you. So well explained, 9 years now i hope everything is good 🙏🏽
2010: '1.5% is a low yield'
2020: 'Hold my beer'
good comment G
You're a great guy for doing this. It's difficult to take in what is said in class all the time and furthermore understand what the book is saying. I wish publishers would understand that there is a simple way to explain this kind of stuff and that they'd be doing the public a service speaking in such a way. Nobody is impressed reading text they can't understand or for that matter, using words that are ancient or sentences that sound like old english.
So great work. You're helping me through my core classes!
Thank you very very much. My biggest fear is that you get bored with this and stop!! you should know that when we wake up, the first thing we do is check if you posted a new video!! so please carry on!!!!!!! you make all concepts easy. its a God given talent you have!!!! ur the lionel messi of finance!!!!
You are such a great teacher and human for sharing this free, quality, education. Please keep these up forever.
I DONT KNOW HOW I FOUND THIS CHANNEL , BUT I AM GLAD I DID
Tim has taught me more in his videos than my degree has done in the last two year hahahah. Top Guy!
truee.
Tim, I am very impressed of the simplicity of your video. Thanks for that. Money Week has to be proud of you. THanks.
Helped me through last year at uni back in Edinburgh and into the city down here! Hugely appreciated, great teaching style. Thanks
Still hands down the best explanation. I miss the early tube formats 😔
your uploaded video in 2011 is helping still helping people in 2021 god bless you sir
Great video. All videos by MoneyWeek are excellent. Concepts are explained with great clarity.
Tim, you are so awesome for breaking this down to the bone! Thank you.
I'm studying R02 (Investment Principles & Risk) at the moment, and this is by far the best explanation on Bonds!!! Thank you!!
I'm so happy I made productive decisions about my finances that changed my life forever,hoping to retire next year... Investment should always be on any creative man's heart for success in life.
I agree with you and believe that the secret to financial stability is having the right investment ideas to enable you earn more money, I don't know who agrees with me but either way I recommend real estate or crypto and stocks.
Yeah!! It would be more beneficial and yield more profit if you actually trade on cryptocurrency, I've been trading since the dip, I've made so much profit trading.
I am interested to know more and invest in Crypto please
trading is easier with proper guidance, especially from a professional, Newbies who are not aware of how crypto truly works and wish to make profits from it, I would advise to invest with a professional like Fergus waylen, It helps secure and minimize the possibilities of losses.
I'm honestly surprised that this name is being mentioned here, I stumbled upon one of his clients testimony last week in CNBC world news
This channel is an excellent resource for anybody studying economics like myself. It’s both comprehensive and easy to understand!
Great explanation of a complex topic tny investors don't understand.
hey thanks a lot for the bond video it simplified things for me more than when i sit in my finanicial management class
This is just such a clear easy to understand explanation. Thankyou.
over a decade old and this video is teaching me so much. thank you
Thank you for this very simple and clear explanation about bond yields.
this guy is fantastic ....at explaining things...good job man.
Thank you this definitely made me know more about bonds
Tim, thaks for taking time and wffort to share these informative videos. I have been going through your other videos aswell. Thanks for providing insight on some financial jargons and what they mean in simple understandable language. Highly recommended videos for someone to understand whats going on in the present market.
do you have videos about corperate bonds and how they cost is presented in the financial statements
Bonds can be quite complex. Also, as a general rule of thumb. As you get older, you will likely move more of your assets into bonds. They are not really a young persons investment of choice.
Finally a video that makes sense. Thanks Tim.
If i wanna take inflation into consideration, is there any way i can add it to the equation to get a final result for the maturity to yield ?
You are such a great teacher
Can we buy bonds in the primary market?
Very easy to understand, thank you Tim
What’s the difference between the interest and the dividend that some bonds pay?
thanks, your explanations are so clear and am learning a lot from you.
I love this channel. I just wish the older vids could be updated to improve video and (more importantly) audio quality. Thank you for sharing the wealth (of information) that you have! 😃
hi can you please differentiate the nominal and market price here ?
So the Fed buys bonds, which also pushes the price of bonds up as it decreases supply, which lowers the YTM, making them less attractive. Is that correct?
Awesome, he couldn't explain any better.
Will all the different possible types and options of bonds, how is it possible to make a fluid market for them?
How are they traded? Are they standardised? Is there a limited number of bonds types?
brilliant videos. I subscribed Money Week magazine because of this video channel.
im a little confused.. so at the end of the 4 years the gov't will pqy me back the 113? i get paid each year and paid in full at the end
at the end of the four years you will get paid 100 dollars- thats the fixed value of the bond. 113 is the market price. each year you get paid the interest which in this video is 5% or 5$.
Thanks for the question, MrDadebitch. I was thinking the same thing. And thank you Commodore for explaining it because Tim Bennett did not explain that this bond was being resold.
Very good refresher course! And the way you teach is interesting.
this guy is pretty good. good basic introduction!
I hope you can use those coupons in Wetherspoons!
I learn a lot from your videos. Thanks
This guy knows his stuff.
Excellent explanation and flow! Made it easy for me to put the dots together...
Cheers from Cyprus!
Starting at about 10:30 it explains why as the price of a bond rises its yield falls. Good video - thank you.
Great video. Watching this in the context of Q/E. So a government that needs cash will issue government bonds to take money out of circulation/economy - lowering inflation. Then if inflation gets too low it will undergo some Q/E - creating digital money to buy up the government bonds it issued previously - freeing up money to be spent elsewhere e.g. corporate bonds and hopefully boost investment and inflation. Did i get that right? Thanks.
So a government that needs cash will issue government bonds to take money out of circulation
No. The FED auctions Treasury bonds. Say $1 trillion. Proceeds from the auction are transferred to the Treasury. The Treasury uses the proceeds to pay the obligations of the federal government. Once paid, the money supply increases by $1 trillion.
Thank you Tim! Very generous sharing of brilliantly clear knowledge here
A good explanation of Fed's QE2
nice video.... i am sure you can elaborate it further... please do
The kind of information they won’t explain in school. Never took a class for this information but as a day trader I’m educating myself on other information around the market. Better to learn when you have a genuine interest than by being forced in some class that only wants to weed you out.
I have a question. Lets say BOND-A 10% coupon start in 2014 and mature in 2016 @market price 100 when they first open. In 2015, the market price is $110. And I bought the bond @$110. When it matures in 2016. Do I get paid back all my capital, $110? or I get back the money based on market price at maturity, which is $100.
+Teddy AGP You get the $100 back.
So, this might sound stupid, where does the $13 go?
to the seller lol. the middle man who sold you the bond
Great explanation
Another excellent explanation. Thank you.
you're on fire! great vid
6:19 "so ...some investors will just say..." (writes FY)
Fantastic, thorough explanation. Well done sir 👍
Great video!
could u please make a video on how to understant FINANCIAL TIMES .
lol
Where did you get the £5?
A one legged man yes, the 5% coupon is based upon the nominal rate and not the purchase value of 113, hence the example of the vegetable
Superb bond primer.
Thank you for this clear explanation!
you got me when you said well it is too good because i forgot something* :D
Nicely explained thanks
Thank you. So understandable.
THANK YOU! SO USEFUL!
You are absolutely brilliant. Keep doing this!
nominal value AKA face value(USA finance class term)
Sir I would be grateful if you would explain the principal debt instruments for raising finance in international financial markets... Please make it sooner as my exams are nearing by this month end
When u get paid back, do you get interest too?
The "interest" is paid annually as a coupon. The 5 pound per year "coupon" is like 5% interest on the original 100 pound value of this bond. At the maturity date you get back the value of the bond, which in this case is a flat 100 pounds. No additional interest would be paid at the time of the bond's maturity.
Oh ok thanks :)
Shaheen Samavati So, just to clarify, over all you make £115 from it? As in £2 profit?
+malsahth No. You bought the bond for £113. You make 5% interest off the original £100 for 4 yrs. That's 5 x 4 = £20. Plus of course the £100 given back to you at the end of 4 years (maturity date) making £120. But then you have to subtract the £13 extra that you paid for the bond. So £120 - £113 = £7. You make a profit of £7 on a £113 investment after 4 years.
theres something i don't understand: what happens if you buy a countries bond a the country goes default on year lets say 2016 but bond mature at year 2020 and the country recovers from default by that time will the country pay the loan or since it went on default on the period from when you bought the bonds to age of maturity then it won't pay ? im liking the Venezuela bonds
Christian, government bonds are considered to never default (at least in the Western world), so if you're asking in terms of the UK govt or American govt, that wouldn't be an issue.
If it was some other borrower who defaulted, it will pay you back no matter what. However, the amount you receive may be lowered since it defaulted. Even if it rose, the rise would have to equal or exceed the default dip so as to pay you back your true amount.
Meggi Stimmler Sovereign nations can default on their debt. Generally what will happen first is some sort of debt restructuring to lower and/or extend the total amount to avoid a complete default.
excellent video
How you make that 13 loss?did you think about ?Do you plan collapsing markets? Its accounting doing the crashes anyway
Your comment towards the end regarding QE and central banks was very interesting - thought provoking even. Encouraging money to get out of bonds and go somewhere else.
Would you care to comment on this further, a decade later, regarding the current financial climate?
Is it intended or do the central banks simply have an arm caught between a rock (depression) and a hard place (inflation) with nothing but a rusty spork to free themselves (QE)?
I am starting to think that it is intended. I foresee a massive ‘reallocation of capital’ to truly bring us in to the 21st century.
Perhaps I’m just a nut job but nonetheless your comment on the above would be greatly appreciated.
Best regards,
S*
Thanks. But inflation takes its toll. Bond issuance is one of Treasury’s sources of money. A nation that needs more money than it has looks to its Treasury to get that excess. The supply of money for bond issuance and entitlement programs and wars and other things increases as the demand increases. So whether it’s bond issuance or spending without bond issuance, the supply of money increases (inflates).
So the yield on a fixed treasury reduces as inflation eats away at the par value of the currency. Is the “real” % yield, accounting for inflation simply a reduction of the coupon rate minus the annual discount rate minus the inflation rate?
What about taxes and inflation?
Thanks a lot for this 🔥🔥
Simple and clear! Thanks!
朱一鸣 it's too simple , fully agree, here is nothing about amortization premium and discount. But that's simple too ~
Excellent video. Thank you so much!
i don't know if i'm being really dense. at the end of 4 years you should have $120 right? $5x4years + $100par = $120 which is $7 return. so how is that 1.55%?? maybe i'm looking at this too simplistically.
Dee you are calculating the percentage over the 4 years. He is doing it yearly
Why would the market price rise beyond the nominal price + 5%. Why would an investor buy a government bond at a price of 113 pounds if he would get only 105 in yield?
Bond prices rise and fall for the same reason that the price of anything rises and falls - supply and demand. Bond prices are high (for example, 113) when demand for bonds is high - typically, during a bear market in stocks. Yields, of course, move in the opposite direction. So, if there was a stock market crash and everyone piled into bonds ("flight to safety", "flight to quality"), bonds become more expensive for the investor (lender) and debt becomes cheaper for the borrower - in other words, prices rise, yields fall. The reverse occurs during a bull market in stocks - debtors must reduce bond prices and increase coupons in order to attract debt capital.
Thanks a lot :)
Also, the buyer would get $5/year until maturity. You would never buy a bond to lose money. In this example, the maturity was 4 years after purchasing the treasury - so a total yield of $120.
Still not understanding how he got the 5$ to subtract from the 3.25 in the second equation
the bond is worth 100 gbp - we bought it at 113 and sell at 100 without any coupon involved...I think thats what you are asking?
thanks sir for this understandable lesson
Can you do a Bonds for dummies video? I am the said latter.
Helpful. Thank you.
Thank you, very informative!
How about inflation? doesn't it need to be reduced from the return? actually seems like a loss with 1.55% return.
brilliant sir..
Actively.calling price fluctuation a loss is very dangerous
Finally i get it.... Thanks :-)
How you make that 3 p loss evry year of that13,if you sell you get your13, no one keeps it to maturity,bonds were made to sell and buy
Where did he 13 from to divide into 4 years
The Common Sense Glass Steagall Act and Pre-1997 Strict Banking Regulations are to be Reinstated to prevent the racketeering of mortgage Ponzi schemes.
excellent thanks
Thank you sir.
Power to the people
Thank you.
...........What about figuring in the "Rate of Inflation, .....and also, Taxes?!.... How bad does either of these things destroy One's "ACTUAL "Rate of Return"?!....