bonds are a type of financial instrument that yield a fixed income. These instruments are essentially “IOUs” or debt instruments that are issued with the interest rates paid on the instrument as well as the date when the interest and face value (principal) of the bond will be paid. Normally, bonds are issued by governments, government agencies or large corporations when they need to raise capital. There are many different types of bonds in the financial markets. They include:
• Treasury Bonds
• Treasury Bills
• Corporate Debt Security
Treasury bills are, to put it simply, a short term debt security issued by the government that bear no interest. Instead, these bills are sold at a discount for redemption. Because they are issued by the government, they are considered low risk and safe investments.
Unlike treasury bills, treasury bonds are long term debt securities that mature in 10 years to 30 years. They have a fixed yield interest rate which is normally paid out bi yearly or annually.
Corporate Debt Security
Bonds can also be issued by a corporation seeking to raise fund for its expansion. They are usually issued with a medium term maturity period. Although the structure of corporate bonds is basically the same as treasury bonds, they are considered as higher risk, since they are issued by a private corporation as opposed to a government or its agencies. As they are of higher risk, corporate bonds usually yield a higher return.
Trading Bonds and the Time Frames Of Bonds Charts
Bonds are normally sold at auctions or traded on the secondary market. Although one can buy bonds directly from the issuing party, the frequency of these auctions are not frequent enough to offer these bonds the liquidity that they need for easy conversion to cash. Instead, this role is fulfilled by the secondary market. They are traded in the same way as other types of financial instruments such as stocks or exchange traded funds. Prices in the secondary market will fluctuate accordingly to the demand for these instruments.
Hence when trading in bonds, it is important that you differentiate where the bonds are purchased from, as this will determine the frame of the bond charts that you use. For bonds which are purchased at auctions, they are normally for long them investments. As such the type of bonds charts used to evaluate the price movements of these bonds, should be on a longer time frame stretching into years.
With bonds that are traded on the secondary market, the time frames of the bonds charts are variable and depend largely on your investment strategy. If your trading strategy is for short term gains, then the correct time frames for your bonds chart should be hourly or daily. By using charts with shorter time frames, the price trends can be discerned more easily.
Bonds represent a unique case as they are bought and sold in volume at auction whereas in the secondary market, they are available for trading on the retail level. For most bonds traders, their investment objective will be for the short term with their focus in the secondary market.