Bonds. Like any other type of investment vehicle, bonds provide investors with two kinds of income: (1) They provide current income, and (2) they can often used to generate varying amounts of capital gains. The current income is derived from the periodic receipt of interest payments. Capital gains, in contrast, are earned whenever market interest rates fall.
VIDEO. The basics of bonds [see].
Pricing. A very basic rule in the market for fixed income securities is that interest rates and security prices move in opposite directions.
Key features. Type of issuer (governments, corporations), maturity, coupon and principal.
Tenor / Maturity. In the US, 3-month to 1-year Treasury paper is called T-Bills; from 2 to 10 years, T-Notes; and T-bonds beyond that (30 years).
Balance sheet. Assets and liabilities!
Size of the market. Government Bonds of US Commercial Banks, March 7 2012: $ 459.7 billion. Corporate Bonds. Corporate Bonds of US Commercial Banks, March 7 2012: $ 824.2 billion. Mortgage-Backed Securities. MBS of US Commercial Banks, March 7 2012: $ 1297.2 billion.
Case: UBS. From UBS's balance sheet [see, p. 43]. Exposure to French bonds: CHF 3525, of which CHF 2009 in corporate bonds, CHF 785 in sovereing bonds and CHF 730 in bank bonds. Bonds issued: CHF 158.
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