How to More Accurately Predict Bond Price Trends?

If you often trade in a stock market, you may be a little surprised that in bond trading market, you will not find a central exchange. Luckily, the whole process is comparable to stock trading.
The first step in trading in bond market is to get a brokerage account, it can usually be obtained in bond brokers, but if you have no time to search your city for one, they are usually available online, as always Google is your best friend. Just make sure the broker you choose online has a good reputation, it would be even better to get a broker based on recommendation of friends and family members.
That’s an easy part, unfortunately bond trading is much more complicated than that. Just like foreign exchange, bonds have buy and sell price, it also have a small amount of interest rate. Buying a bond will entitle the bondholder or the bearer to pay the principal when the maturity is due and the interest must be paid twice each year.
The price of bonds fluctuates just like stocks. The earliest price and the interest rate are determined during an issuance. And just in a few hours, they may have different price. When predicting the trend of bond price you should consider that it is influenced by the movements of bond price in the whole market.
In many cases you will see that the bond price tend to rise when CD, bank loans and real estate loans have an increase in interest rate.
Just like in other fields of economy world, you won’t see anything that is certain. Even when all the factors seem favorable, you may see an unexpected decrease of bond price. But still those factors are should considered as things that would increase the probability of bond price direction. Going against the current all the time would be foolish as there is a bigger chance that the bond price will drop and you only get less profit than expected. Investing in bonds is a safe way to slowly increase your asset, as always, measure your profit against the inflation rate during the life of the bonds, because a safe investment tend to have smaller profit.

Understanding risks in bond trading

Everything in our life carries risks no matter how negligible they are. Bonds trading although considered as safe investment also carries some risks. For example, although bondholder have bigger priority compared to shareholders, but when the company filed for bankruptcy, there would be no fund available to pay for the bonds at their maturity.
Bonds are safer because the worst that you can get after years of investment is only the principal (in the economic sense, this is still a loss because your money depreciates with inflation rate through the years). It is a common principle in the economic world that lower risk means lower profit, but luckily you can still employ a reputable bond brokers, which have long experiences in giving you more profit than loss. Many investors in bond trading use Moody and; Standard and Poor (S&P).
Both firms use unique formulas that are based on their experiences with the biggest chance of predicting the bond price trends. They have categorization of bonds based on their risk scale, for example very safe bonds are called “Moody” and very risky bonds are called “junk bonds”
Beginners in bond trading should spend about 2-3 months learning about past bond movement histories and try to simulate the current bond price movements based on the known factors and their knowledge. After someone has an idea how a bond price move, it would be safe to immediately dip their toes and start easy. Just like in stock markets, novice bond traders may rush too quickly and ignore about learning the ropes of bond trading. There are several simulation tools online for bond trading, which allow you to rehearse in bond trading without actually spending money save for the fee of using the simulation service.

Trading Bonds at Premium and Discount

A common aspect in bonds trading is essentially 'over one hundred', meaning you are trading bonds at higher value than the issuance price, and bonds that are 'under ten' are bond trading that is at a discount. The a hundred refers to a hundred percent, which is its initial price.
Like most investments, bonds carry some risk factors. If your company goes insolvent, bond-holders do have precedence over stockholders when dealing with the creditors payment, but if there is no cash available for the payment, your position in the waiting line is essentially irrelevant. A good deal of bonds are reasonably low at risk, as commonly it is anticipated that you would at least get your cash back during a crisis, however the less the risks, typically the less the profit on your bonds.
To assist you in assessing which bonds are good for you, it is better to examine the bonds ratings put out by Standard and Poor's Index or Moody. Those organizations break down bonds using incredibly intricate, technical techniques, in an attempt to create a simple prediction. You may start from the really low risks or those AAA-rated bonds, and finally the CCC-bonds, which are extremely high in risks and are frequently called as high-yield bonds.
Be sure you do your research before purchasing bonds - check over the business, including profits predictions, likely legal problems, debt levels and so forth. Essentially, you will loan that company your cash, and just like most lenders, you have to feel comfortable that the interest rate will be compensated in a timely manner, and that this company can pay off the debt entirely at the agreed period.

Comparing Bonds Trading with Stocks Comparing Bonds Trading with Stocks

Trading bonds may appear a little hard to do compared to stocks, as there is no midway exchange during trading your bonds. However, if you know what you are doing, trading bonds can become very easy.
To begin, you require a single brokerage account. It is your decision if you choose full-service brokers or the web-based trading accounts. Maybe your own experience level can aid you in making the decision. Be sure you know what your account needs you to do in an attempt to place the order. You do not want to find yourself wanting to place a few orders but cannot do it because you are traveling and do not have online access, for example.
Bonds have a sale price, a purchase price, and also the interest rate. If you buy bonds, you need to pay the principal payment whenever the bond maturates, and also interest payments a couple of times annually.
Just like stocks, the bond prices vary significantly. If your bond is the first issue, the opening price and rate of interest are officially set. It means the market prescribes how they're valuated, and if the value is lower or higher compared to when they were issued. Worldwide market rates of interest have a substantial effect on the bond values fluctuation. If the rates of interest on real estate mortgages, bank loans, and savings accounts deteriorate after an issuance, then the bond's value can increase.
If you are having bonds that were issued and paid at an rate of interest of seven percent, and cash deposits decrease to an income of six percent, then eventually your bonds will be worth a lot more and the price may rise. In essence, your bonds pay higher in interest compared to other investments. As to how much they are likely to increase, well, that is far more complex, and definitely beyond the reach of this blog.

Why You Should Choose Bond Trading?

Agency brokers are jumped to the bond trading business nowadays as investment deposits have went away or brought down on creating market, but some probably make it in the long-term when banking companies get back forcefully.

Investors state that after the Lehman Brothers crumbled, most bond traders haven't wanted to devote budget to furnishing uninterrupted bidirectional bond prices.

Agency brokers then sequestered the chance to build up, occupying the gap formed by some depository financial institutions.


While bond dealers at the investment banks trade their bonds and require funds to cover the risks of holding inventories, agency broker responds on the buyers and adopt no principal risks.

The brokers competition is a boon for the bond trading market by constricting the gaps between bids and give quotes and by forcing banking companies to ramp up once more.

Nevertheless, investors state that the market isn't back to its routine two-way pricings.

The Effects of Growing Bond Trading to the Economy

Tighter bond trading spreads are coming amidst a expanding playing area, where lowlier firms are occupying gaps resulted by the departure in 2008 of major shops like Lehman and Bear Stearns.


Spreads have get in, recent participants have came forth and the frequence of business transactions is lower, so they will crimp incomes compared to the earlier quarter of vigorous revenues

Tighter bond trading spreads are related to other favorable market conditions -- like lower risk premiums as valuated by the bond payoffs -- that are accompanying sign of economic backlash and endorsement from United States projects. As sentiment increases and volatility ebbs away, the bid/ask will contract as dealers acquire lower risks in bond trading and are agree to create marketplaces for investors.

In the commercial mortgage-backed securities, for instance, bid/ask spreads is brought back to twenty basis points, approximately levels of middle 2008, from nearly a hundred basis points at the bottom of the credit tragedy in end of 2008.

Banking companies can still benefit as more requirement in credit markets brings down yield spreads of inventory, and as they are allowed to fund themselves at points around 0. A recurrence to record breaking tight bond trading spreads will not take place, in the meantime, given a current, lower floor to what investors believe to be satisfactory risks.

Understanding the Role of Bond Trading in Economic Recovery

The recuperation of the U.S. credit industry and expanding competition are constricting one of the largest reservoirs of incomes at investment funds banks in the last 6 months.

Bond trading in mortgage and corporate bonds is a blessing to banking companies as the aversion to taking investment hazards has held back the prices range between offers and bids wide in the 2nd quarter. The broader the price bands, or the bid/ask spread, then the bigger the profit option when you are brokering a sale.

Certain spreads have currently ended at the tightest level since before the most atrocious moments of the credit crisis at the end of 2008, exemplifying a theoretical, but central, part of a credit market recuperation. Spreads will condense further if excitability ebbs, allowing banking companies to turn to other places to promote earnings.

Spreads "are likely will (tighten up more), since banks are rivalrous with one another

Bond trading have an important position in lifting banking companies out of their hardest phase in decades following the the break up of Lehman Brothers at September. Goldman Sachs Group Inc has reported a $3.4 billion the second-quarter net profit after trading income nearly all doubled over.

Looking forwards, lower bond trading incomes imply that the banking recuperation, the enlargement of much-needed credit and the come back of U.S. economic emergence could be held up.