Assessed value is used to determine the property taxes due on real estate. Assessed value is normally lower than the appraised value of a residential property, because it is not looking as much at the value of the home, but rather the value of the property, for property tax assessment. While the assessed value does have to do with the market value of real estate, most calculations only use average home prices the area, found in local real estate listings, as part of the valuation. The “ask” prices are going to be higher than the prices at which they’ll sell. Continue reading...
Municipal bonds funds invest exclusively in tax-advantaged municipal bond issues. Municipal Bond Funds invest in issues of municipal debt, often with the intention of using its tax advantages. Bonds held in a ‘muni fund’ might be state or local issues of general obligation or revenue bonds. Gains on muni funds are not taxable at the federal level, and if a person resides in the state in which the bond was issued, they can most likely avoid state or local taxes on gains as well. Continue reading...
The possibility of a company or municipal government defaulting on their bond obligations, usually by going bankrupt, is a real one. For this reason, all bonds are rated according to the financial stability of the issuer. A look at the history of corporate and municipal debt will illuminate the fact that the possibility of the issuer being unable to pay its obligations to bondholders is a very real one. There is an established system of bond ratings that gives a rough estimate of the bond's reliability. Continue reading...
A bond is a contract which “binds” the lender to the debtor, where an individual investor is generally the lender and the debtor is the company or government which has borrowed funds. When a company or government entity needs more capital, whether to fund operations or a specific project, it can borrow money from investors instead of from a banking institution. Where there is a risk of the investor not being repaid, the interest rate will be proportionally higher. The simplest way a bond works is with set payments at set intervals that gradually repay the debt and interest owed to the investor over a set amount of time. Continue reading...
Mortgage subsidy bond is another word for a mortgage revenue bond, which are municipal bonds which are used to fund mortgage relief programs and refinancing arrangements through the state or municipal government. In 1980, the Mortgage Subsidy Bond Tax Act established some rules and definitions surrounding mortgage subsidies and their bonds, and, more specifically, removing their exemption from federal taxation. Continue reading...
Chapter 9 is a form of bankruptcy filing that is reserved for municipalities which have defaulted on their debt obligations. This could include a school district or other entities which have a municipal affiliation and the ability to generate revenue from local taxes. They cannot be made to liquidate anything. In fact, it forces the lender to accept a refinancing of the debt obligation. Because municipalities fall under state jurisdiction, the federal government, which governs bankruptcy court, does not have the ability to force liquidation of a municipal entity’s assets. Instead, this provision of bankruptcy law governs refinancing arrangements to facilitate the repayment of debts owed. Continue reading...
Bond insurance is a contract that protects the issuer and the holder of bonds from the risk that bond payments will not be made. Bond issues from the corporate or municipal world, or from derivative sources as with asset-backed securities and CDOs, come with the risk of default-- that is, that payments will not be made on time. The major credit ratings agencies (CRAs) assign a risk of default to each bond issue with proprietary analysis methods and ratings. Continue reading...
Bonds are divided into a several categories, and it is possible to get substantial diversification within a bond portfolio alone. Bonds may be categorized into several types. There are investment grade bonds which are conservative and safe, high-yield bonds which are relatively risky and profitable, floating rate bonds whose coupon rate is not fixed, zero coupon bonds which only pay at maturity, and foreign bonds, and so on. Continue reading...
Some bonds receive preferential tax treatment. The interest you receive is fully taxable, unless the bonds are issued by municipalities, states, federal governments, or corporations with special tax-exempt statuses (such as school districts, infrastructure facilities, hospitals, and so on). The first very general rule of thumb – if you reside in a certain municipality and buy bonds of that municipality, the interest is not taxable. Continue reading...
A fixed income security is one designed to pay interest/coupon payments on a predetermined basis, or a fixed schedule. Fixed income securities are often used by late stage retirees who need safe, reliable income streams. Fixed income securities still have risk, such as interest rate risk where if interest rates rise the price of a fixed income security can fall. Examples of fixed income securities are U.S. Treasuries, municipal bonds, or CDs. Because fixed income products carry relatively low risk, it generally translates into relatively lower returns. Continue reading...
BB- — S&P / Fitch Ba3 — Moody’s The BB-/Ba3 rating is given to bonds and companies who have a moderate risk of default, and this rating appears around the middle of a scale with over 20 ratings. There are two symbols in this example which are the same rating: Fitch and S&P use BB-, and Moody’s uses Ba3. These are the Big Three of the Credit Ratings Agencies (CRAs) that the SEC has sanctioned to issue ratings which can be used for internal regulation within industry groups. Continue reading...
Yield is a term which describes the cash return on a security investment, and does not include appreciation. Yield is the cash paid out of an investment in the form of dividends and interest received. The term does not encompass the appreciation of the investment, and it may be evaluated in different ways for different types of investments, so comparisons of yield across asset types is not standardized or recommended. Continue reading...
BB — S&P / Fitch Ba2 — Moody’s A bond rated BB/Ba2 is just below investment grade and is a somewhat speculative financial instrument. Fitch, Moody’s, and Standard & Poor’s (S&P) are the Big Three major credit ratings institutions. They each have proprietary formulas for assessing the financial strength and creditworthiness of companies, municipalities, insurers, and bond issues, The most common use of these ratings is for bonds, as investors seek to learn how likely it is that a bond will default on its payments. Continue reading...
Accrued Interest applies to a bond or loan, accounting for the interest that is calculated per diem for the time between payments. Accrued Interest is the amount of interest that has "built up" between the last payment and the present, with regards to bonds and loans. If a bond is sold from one person to another, and the corporation or municipality that issued the bond pays out an interest payment at regular intervals, the sale price will have to factor-in the "accrued interest" since the last distribution, and the buyer will have to pay the seller for the accrued interest due while the latter held the bond. Continue reading...
You might not know it, but the Bond Market is about twice the size of the Stock Market. It’s true; in the US and internationally, the bond market, which includes municipal bonds, corporate bonds, government bonds, v, etc, has almost twice the amount invested in it than the Stock Market. Within these categories, there are many subsets. Bonds are widely used by individual investors as well as corporations and governments. Continue reading...
There will always be more to learn in the investment world: innovation is always happening and the products will change along with market conditions. Bonds are no exception. The bond market is huge — actually larger than the stock market, if you can believe that — and there are literally hundreds of economic, market, and tax-related factors which influence the decisions of which bonds to buy. You must look at the yield curve, duration, rating of the issuer, your own cash flow needs, expected changes in the interest rate environment, changes in the overall health of the economy, tax implications, account in which you're buying bonds, and so forth. Therefore, structuring fixed income accounts is a task which is perhaps better left to professional advisors. Continue reading...
Bonds can be traded on exchanges before their maturity date, but the price might fluctuate based on the current interest rate environment. As the buyer of, say, a $1,000 bond, you should be aware that as long as the company does not go bankrupt, you will receive $1,000 back at the date of maturity. During the life of the bond, however, the price at which you can sell that bond might oscillate depending on the interest rate environment and the perceived financial health of the company. Continue reading...
The Housing and Economic Recovery Act of 2008 took several steps to patch up the housing market after the subprime meltdown, one of which was the authorization of states and municipalities to issue mortgage revenue bonds (MRBs) which they could then use to help local lending institutions fund mortgages for lower-income Americans. Housing bonds are issued by state and local governments as a way to raise revenue that can help local banks and lending institutions fund mortgage loans to the community. Continue reading...
A Zero Coupon Bond is one that does not make interest payments - the bondholder only receives the face value back at time of maturity. The bond purchaser typically pays a deep discount for the bond, and the gain made over the life of the investment is the difference between the amount paid for the bond and the face value returned to the investor when the bond matures. What is a Bond Coupon? Is There Anything Else I Need to Know About Bonds? Continue reading...
Fixed income funds may not be used for income at all, but are relatively safe investments that primarily consist of dividend-paying bonds. Fixed income funds, also known as bond funds, invest primarily in bonds, but might also include some preferred stock, which pays regular dividends and behaves much like debt instruments. In fact, there are also Preferred Stock Funds and ETFs that fit into this category. Continue reading...