What you'll learn

• Core Bond TerminologyThe foundational vocabulary describing bonds, including face value (principal amount repaid at maturity) and coupon rate (the fixed annual interest rate paid as a percentage of face value).
• Government and Treasury BondsDebt issued by a national government (such as U.S. Treasuries issued by the Department of the Treasury) with which you lend money directly to the government in exchange for periodic interest and principal repayment at maturity.
• Buying Individual BondsPurchasing a single, identifiable bond security with fixed terms either directly at government auction or through a broker on the secondary market, rather than through a pooled fund.
• Inverse Relationship Between Prices and RatesBond prices fall when prevailing interest rates rise and rise when rates fall, because fixed coupon payments become relatively less or more attractive compared to new offerings.
• Credit Ratings and Rating AgenciesOrganizations like Moody's, S&P Global Ratings, and Fitch Ratings that evaluate issuers' financial health and assign letter-grade ratings summarizing their opinion of an issuer's ability to meet its debt obligations.
• Bond Allocation StrategiesLaddering and blending are two methods for structuring a bond portfolio to manage interest-rate exposure without attempting to predict where rates will move.
• Bond Maturity SpectrumThe classification of bonds into short-term, intermediate-term, and long-term buckets based on time to repayment, and how maturity length drives price sensitivity to interest-rate changes.
• Corporate BondsA loan to a company that pays fixed interest and principal repayment, offering no claim on the company's growth but a higher priority claim on cash flows than shareholders and higher yields than government bonds due to default risk.
• Bond Mutual Funds and ETFsPooled investment vehicles holding many individual bonds that provide instant diversification and liquidity, but sacrifice the fixed maturity date of owning a single bond.
• High-Yield BondsCorporate bonds issued by below-investment-grade companies that pay higher coupon rates to compensate investors for greater credit risk.
• Duration as Interest Rate SensitivityA measure expressed in years that quantifies how sensitive a bond's price is to changes in interest rates, with higher duration indicating greater price swings when rates move.
• Role of Bonds in a PortfolioBonds serve three core functions in an investment portfolio: generating predictable income through coupon payments, reducing overall volatility through different price-movement drivers than stocks, and preserving capital with principal repayment on a known date.
• Yield vs Coupon RateCoupon rate is the fixed annual interest payment as a percentage of face value, while yield is the actual return based on the price paid for the bond in the market.
• Municipal BondsDebt issued by state, local, or municipal government entities to fund public projects like schools and infrastructure, with interest income typically exempt from federal income tax.
• Interest Rate Cycles and Bond MarketsPeriods of rising or falling central bank policy rates that drive bond market returns as the Federal Reserve adjusts rates to manage inflation and economic growth.
• Evaluating an Individual BondA systematic process of checking a bond's credit rating, yield, maturity alignment, call features, and tax treatment to verify that promised payments will be made on terms suited to your situation.
• Stock-Bond Correlation and DiversificationBonds and stocks historically move based on different forces—interest rates and credit conditions versus earnings and growth expectations—resulting in low or negative correlation that reduces portfolio volatility without sacrificing return.
• Bonds as Loans vs Stock OwnershipA bond is a contractual loan where you are a creditor receiving fixed interest payments and principal repayment, while a stock is an ownership stake with unlimited upside and downside potential.
• Tax Considerations in Bond InvestingBond returns are heavily influenced by tax treatment because most return comes from interest income taxed at ordinary rates, making after-tax yield rather than stated yield the true measure of attractiveness, and tax benefits vary by bond type.
• Individual Bonds vs Bond Funds TradeoffsA comparison of buying individual bonds, which have fixed maturity dates and require more capital but less liquidity, versus bond funds and ETFs, which offer daily liquidity and diversification but have continuously fluctuating values and no maturity date.
• Bond Fund Evaluation MetricsExpense ratio, average duration, credit quality breakdown, and tracking approach are the four key metrics used to evaluate bond funds and understand what you own in a basket of hundreds or thousands of bonds.
• Call Provisions and Early RedemptionA contractual feature giving the bond issuer the right to repay the bond's principal before maturity, typically when interest rates fall, which benefits the issuer at the bondholder's expense.
• Credit Risk and DefaultThe risk that a bond issuer fails to make a scheduled interest payment or repay the principal at maturity, representing the uncertainty surrounding an issuer's future ability to generate enough cash to service its debts.
• Target-Maturity Bond ETFsA fund holding a diversified bond portfolio where all bonds mature in the same target year, with the fund liquidating and returning capital around that maturity date rather than reinvesting into longer-dated bonds.
• Yield to Maturity ConceptThe total annualized return an investor can expect from buying a bond at its current price and holding it until maturity, assuming all scheduled payments are made on time.
• Inflation Risk and Bond ReturnsThe danger that rising prices will reduce the purchasing power of a bond's fixed coupon payments and principal repayment over time.