by Hi, my name is Drew Hoover and I am the Director of Bonds Research for Laker Asset Management. Just like many of you, this is my first time dealing with bonds and learning how they work. I am excited to jump into the role as Director of Bonds and learn alongside any of those willing to research with me as a Junior Analyst. The team is always looking for more people to help out, so look for ways to apply at the bottom of this article.
First, let’s start with a basic definition of bonds. From our friends at Investopedia, a bond is a fixed income instrument that represents a loan made by an investor to a borrower. In simpler terms, corporations, government agencies, or other organizations offer loans to investors for a specified amount of time. Investors buy these loans, and the corporation or government agency receives the money.
Now, how does the investor make a profit from these loans? Well, that all depends on the type of bond you choose to purchase. There are two basic variables that bonds are involved:
Time
Bonds can be bought in terms of periods of time. The most common bonds are short-term, intermediate-term, and long-term. Short-term bonds normally mature in one to three years, intermediate between four and ten years, and long-term bonds typically mature in ten years or more. For US Treasury bonds, the time is classified by the name, such as “Bill” (short-term), “Note” (intermediate-term), and the classic “Bond” (long-term).
Coupon Rates
Coupon rates, similar to interest rates, allow the investor to make a profit from the bond during its maturity. The coupon rate is often what helps investors determine whether a certain bond will be a good investment. The higher the coupon rate, the more interest can be accrued in addition to the principal payment.
There has been a lot of financial terminologies that new members may be unfamiliar with, but this is only the surface of how bonds work. I am excited to dive deeper into the subject as we go through the rest of the semester, and others are welcome to come along! Stay updated in the Bonds thread as more articles are posted. The Macro and Bonds team will be working alongside each other quite often since they are very closely related. Many macroeconomic factors influence how bonds become available and bond rates are established.
If you are at all interested in becoming a Junior Analyst in any sector, please apply here. This will give you many opportunities to help out the club research for investments in the portfolio. All levels of experience are welcome, so do not be afraid to apply. You will have to submit a resume’ along with your application, and you will go through an interview with your prospective Director(s). If there are any questions about the position, please do not hesitate to reach out to any of the club’s Board Members!