Bonds are a way for governments or corporations to raise capital:
- When you buy a bond, you lend them money for a specific period (known as the bond's maturity).
- In return, you receive regular interest payments (called coupon payments) until the bond matures. The frequency of the coupon payments are usually annual or semi-annual.
- When a bond reaches maturity, you receive the face value of the bond back. Keep in mind that there is a potential risk of total loss in case the government or corporation defaults.
Here are some key metrics in the app to consider:
Annual return or Yield to Maturity (YTM) refers to the total return expected on a bond if it is held until it matures. The Yield hereby accounts for all coupon payments and the repayment of the face value. It is expressed as an annualized rate and is based on the buying price (also known as the ask price).
Bond Price refers to the current market price at which a bond can be bought or sold. Bond prices are quoted as a percentage (%).
Coupon is the fixed annual interest rate paid by the issuer to bondholders, expressed as a percentage of the value. If you buy a new bond at face value and hold it to maturity, your current yield when the bond matures will be the same as the coupon yield. The main difference between the coupon rate and YTM is that the coupon rate always refers to the face value, while YTM refers to the current (ask) price.
Duration is the remaining time to maturity of a bond. At maturity, the face value is paid back at 100% by the bond issuer to the bondholder.
Face Value is the amount paid by the bond issuer to a bondholder at the maturity date, as long as the bond issuer doesn't default. The face value does not include coupon payments.
Maturity is the date on which the bond issuer will pay back the face value to the bondholder.
Payment Frequency refers to the number of times per year that interest payments, known as coupon payments, are made. For example, if a bond has an annual coupon frequency, it means that the issuer will make interest payments to the bondholder once a year.
Percentage Points (pp) express a distinction between two percentages and are used to show an increase or decrease of daily performance in the portfolio of a single bond.
Type describes the type of bond: government or corporate.
How does the About Section work?
The About section provides key information about the bond.
Here, you'll find details on the annual return if you were to purchase the bond now, reinvest coupon payments, and keep it until maturity. The annual return typically consists of two parts: the coupon payments and the repayment of the bond's face value. We break down these components, showing the percentage of the annual return that comes from the coupon and the repayment.
If the bond's purchase price is higher than its face value of 100, the About section adapts. It highlights the annual coupon rate and the percentage of the purchase price you'll get back at maturity. Because the purchase price exceeds the face value, the repayment at maturity will be less than the initial 100% investment. However, these bonds usually offer higher coupon payments to balance out this difference.