BONDS

Bonds are debts, where the face value is repaid by the borrower on maturity, or there can be some intermediate payments made by the borrower to the holder of the bond. These are considered risk-free fixed-income assets where a buyer can get a short-term (1-Year) option - a Treasury bill, or a long-term (30 Year – 100 Year) like a corporate or a government bond.  The holder loans money to a firm that borrows to entice the buyer to give flexible or fixed interest rates for a set period of time. These are publicly traded through exchanges, or can be bought through ‘over-the-counter’ (OTC) platforms.

In the last few months, the US Federal Reserve has been cutting interest rates, in the midst of slowing global economy and trade war with China and the long-term Treasury yield declined sharply in the last few months due to such factors where many traders are tempted to buy corporate junk bonds with low credit quality but higher yields.  

In the UK, these are referred to as gilt-edged securities and can be bought by insurance companies, pension funds and banks on behalf of the customer, or can be directly owned through a broker. According to the Barclays data, about $12 trillion investment-grade bonds had a negative yield since the middle of 2016 as the UK voted to leave the EU and the BoE started the buying program of quantitative easing.