Question

Can you lose money with a bond

Answer 1

Basic Undestanding : When you buy a bond , you are lending your money to a compnay or government for a set period of time.Term can be anywhere from a year or less to as long as 30 years. In rerturn the issuer of the bond pays you interest. On the date of maturity of bond becomes due, the issuer is supposed to pay back the face value of the bond in full.

Ways in which you can loose money with bond:

1. Trading losses : It is quite easy to loose money when you a trader meaning selling and buying bond as trader. Below can make you loose money :

a)Intrest rate moves :when interest rates goes up ,bond price fall.

b) Credit downgrades : based on couple of bad quarters or one time unfavorable event can force rating agencies to reconsidered the creditworthiness of issuer.

2. Infaltion : Suppose you have a bond with rate 5% annual interest rate and current inflation is at 6%.you are loosing money.

3. Maturity of Bond : You can also loose moeny on maturity date of bond if you have sell it before the maturity date for less than you have paid for the bond.

4.Deafult by Issuer : In case the issuer of the bond makes a deafult on payment of inetrest or full amount of bond on maturity date than you will loose money and this can happen on account of ill financial health of the issuer or bankruptcy.