As a publisher or issuer of bonds, states and companies can act, so that a distinction is made between government bonds and corporate bonds. Bonds are debt securities, meaning that the publisher takes out a loan on the capital market. So, when you buy bonds, you do not become a co-owner, just as you buy a stock, but a creditor.

The conditions such as term and repayment are specified in the bond terms. It also states whether the bonds carry fixed interest rates for the duration of the loan or whether the interest rate is adjusted on a regular basis. At the end of the term, the repayment of the invested sum takes place – usually 100%.

The components of bonds are also referred to as equipment. These include:

  • Denomination: This amount, also known as “par value”, is printed on the bond and is to be differentiated from the actual value, the market value.
  • Duration: The agreed duration over which the loan is granted. European bonds often have shorter maturities compared to Anglo-Saxon ones.
  • Redemption : For privately placed bonds, the repayment is determined by a repayment plan, the repayment is usually at the end of the term.
  • Interest: For each day you are in possession of a bond, you are entitled to the pro rata interest amount. Payments are usually made annually for longer terms. In the case of variable interest rates, the interest rate may either rise or fall in line with a fixed-rate bond in accordance with a specified pattern, or it may be redefined after an adjustment period based on a reference interest rate.
  • Coupon: This is the section of a security that entitles you to redeem the profit or interest. The term is also used synonymously with the nominal rate of a bond.
  • Collateral: A specific asset may be cited as collateral, otherwise a bond is unsecured.
  • Creditor protection clauses: A distinction is made here between positive and negative protection clauses, which limit the scope of action of the debtor by means of bidding and bidding.
  • Right of termination: If the publisher secures a right of termination, he may repurchase or terminate the bond by a certain date. He pays a fixed price, which is usually above the nominal value.
  • Bond volume: The total amount of bonds issued depends, on the one hand, on the need for external financing and, on the other hand, on the market situation.

maturities

If you buy bonds, you can not determine the term itself, this is determined by its publisher. On the one hand, it is geared to its borrowing needs and, on the other, to interest rates. If it is at a low level at the time of issue, it will strive for the longest possible bond. If interest rates are generally high, the issuer is likely to set the maturity of the bonds as short as possible.

As a buyer, you should make your choice with exactly the reverse logic. You should also keep in mind that bonds with longer maturities promise on average a higher return. However, you can also sell a bond before the end of the specified period. The terms are divided into three time horizons:

  • Short term: Up to four years
  • Medium term: four to eight years
  • Long term: More than eight years

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Government bonds vs. Corporate Bonds

The two main types of bonds are government bonds and corporate bonds. When you buy government bonds, you lend money to a country, and when it comes to corporate bonds, a company becomes your creditor. In both areas, there are safe and uncertain, low-yield and high-yield papers.

As is often the case with investing, risk and reward opportunities are closely linked: if you buy risky corporate or government bonds, such as stumbling corporate groups or highly indebted countries, your return prospects are correspondingly higher. At the same time, of course, the risk of loss increases. Conversely, a good credit rating usually means low interest rates.

Which government and corporate bonds are particularly safe in comparison, you can read from the ratings of so-called rating agencies. These grade the creditworthiness and update their assessment on a given occasion. As a third variable, the term mentioned comes into play: The longer you buy your corporate or government bonds, the higher is the interest rate. You should not necessarily opt for one of the two options in advance, but rather compare different government bonds and corporate bonds in comparison.

Federal bonds and Federal securities

German government bonds are also called Bunds. They fall under the federal securities, which, however, include even more forms of investment. For example, as federal securities:

  • days bonds
  • Bunds
  • Federal bonds
  • Federal savings bonds
  • Treasury financing
  • Federal Treasury notes

As the German economy and politics are relatively well established, the investment in German government bonds is very secure by comparison. This is also reflected in ratings by rating agencies: Federal securities regularly receive the AAA rating, which stands for the highest creditworthiness. But the low risk also means that the German government bonds promise only a low return in comparison.

Overview: What types of bonds are there?

The distinction between government bonds and corporate bonds is based on the publisher. In addition, there are other ways to differentiate the papers – an overview of the most important types:

Type of bond characteristics
Low-Interest Bonds (Low Coupon Bonds) These categories include government and corporate bonds, which have an extremely low interest rate in comparison, as interest rates have risen after their issuance in a period of low interest rates. However, this may result in tax benefits.
Emerging Market Bonds While German government bonds are particularly safe and low-yield due to the stable situation in Germany, bonds from emerging markets, so-called “emerging markets”, are the exact counterpart. They are characterized by good chances of winning, but also a big risk of loss.
Jumbo Pfandbriefe Jumbo Pfandbriefe, or jumbos for short, are bearer bonds issued by real banks such as state or mortgage banks.
Foreign currency bonds Foreign currency bonds are not quoted in euros and, in addition to the usual risks and opportunities, also carry those associated with fluctuating exchange rates.
Structured bonds This category includes those bonds for which individual conditions apply. Just look for these when looking at bonds in comparison.
perpetuals With these ever-currency bonds, there is no repayment of the capital, as a buyer you only profit from the interest.
Annuities bond Here the capital repayment does not take the form of a single payment, but gradually in equal amounts.
Repayment Loan (Loan Loan) Even with redemption bonds, the money is not repaid at the end of the term, rather, after a repayment-free period regularly investors are drawn, get their capital back.
Inflation Linked Bond For these bonds, the nominal interest rate is adjusted to inflation over a given period of time. This is usually based on the Consumer Price Index or similar indices.
Bonds with a step-up coupon They can purchase these securities to protect themselves against changes in creditworthiness, as the nominal interest rate is adjusted to the credit ratings of large rating agencies.
Convertible Bonds Convertible bonds give you the opportunity to convert your bonds into a certain number of shares. You then become a co-owner of the creditor and receive a profit sharing instead of a return.
zero bonds
(Zero coupon bonds)
Zero bonds are long-term bonds with no annual interest payments. The investor will only be paid the entire face value of the bond at the end of the term. The return results from the difference between face value and the usually cheaper purchase price.

Acquisition and trading

Since bonds in most countries do not have to be traded on the stock exchange, so they are not listed on the stock exchange, only a small percentage of purchases and sales take place in this way. Accordingly, stock exchange trading is insignificant even for the market price. So, if you want to buy or sell bonds, you can do that in over the counter (OTC) trading at a bank. Note that you do not buy a certain amount of bonds, but a face value. If you indicate your desired amount, you should pay attention to the denomination, which often corresponds to values of 100, 500 and 1,000 euros. Federal securities, on the other hand, have a denomination of € 0.01.

Fixed-rate Federal securities can be purchased directly from the Federal Securities Administration (BWpV) in Bad Homburg. If you open a debt account there, you can have your securities managed and buy more government bonds.

Advantages and risks

If you buy bonds to invest your money profitably, you will gain some benefits, but you will have to accept a few disadvantages as well. An overview:

advantages

  • Especially bonds from states and companies with a high credit rating are a very safe investment and promise low-risk capital gains, with which you can still often exceed the overnight money conditions and also generate more profit than if you save with fixed deposits
  • Bonds are subject to minor fluctuations in comparison, which reduces their risk.
  • Fixed-income bonds score well with predictable interest rates and capital repayments, making them suitable for a long-term investment strategy.
  • The development is often counter to the stock prices, so bonds are suitable for compensation and stabilization in the portfolio.
  • In the field of bonds, there are many different forms, so that different claims can be served.
  • In the event of insolvency, a priority repayment to shareholders applies.
  • Creditor protection clauses can further minimize the risk.

disadvantage

  • The return chances are limited, you could possibly achieve with other forms of investment with the same use more profit.
  • Price losses and inflation can further reduce profits.
  • Despite relative security, there is a credit risk, which means your borrower could go bankrupt.
  • Bonds are tax disadvantageous compared to equities.
  • Unlike equities, you have no voting rights in bonds and can not have a say in the company.

As described, the extent of the opportunities and risks depends heavily on which paper you choose. Therefore, before you buy corporate or government bonds, you should first set your personal security, yield, and maturity requirements before comparing different eligible bonds in comparison.

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** Further information on official fuel consumption and official CO2 emissions of new passenger cars can be found in the ‘Guide to Fuel Consumption, CO2 Emissions and Electricity Consumption of New Passenger Cars’, which is available at all outlets and at Deutsche Automobil Treuhand GmbH at www .dat.de is available free of charge.

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    Frankfurt am Main / Dusseldorf – Currently, the interest rates for investments in the basement. Whether daily money or fixed deposits, multi-year savings bonds or federal securities – rarely there are more than four percent. Some people find it more sensible to spend the money or leave it under the pillow. However, this does not protect against a rising inflation rate. Many experts see them coming in the wake of the debt crisis. With the following tips, even small savers invest their money profitably.

     

    Picture: piggy bank with bank note 

    Calculating real interest rates : The currently low interest rates are frustrating for savers. However, Eberhard Beer of “Die Alten Hasen”, a network of independent financial experts based in Frankfurt, reminds that the interest rate alone has little significance. Anyone who deducts the inflation rate from interest receives the so-called real interest rate.

    “I always have to see the interest rate in connection with the currency devaluation: If I get 2 percent interest and the inflation is 0, then that is the same as 5 percent interest with an inflation of 3 percent,” calculates Beer. Recently, the Federal Statistical Office for May announced an inflation rate of 1.2 percent compared to the same month last year. This also explains that providers with 4 percent are currently top.

    The goal in view: “The initial question must always be: What do I want to achieve with my investment?” Says Beer. “Is it for the grandchild or for the pension plan? Investment strategy and product selection must be based on the goals.” They can be short-term or long-term, the product more rigid or flexible.

    “Anyone who wants to build up a liquidity reserve for the next two years in order to be able to cope with larger expenditures at any time must invest differently than for old-age provision,” says Holger Handstein from the Consumer Affairs Center of North Rhine-Westphalia. The shorter the investment time, the less risk the investment should hold.

    Daily allowance and fixed deposit: “When you build up an iron reserve, you have to make sure that you always get the money – and that means overnight money or passbook,” says Handstein. Savings books, overnight money accounts or federal securities: These are conservative investment variants. The advantage of overnight money over long-term investment forms: If interest rates rise, the money can be quickly switched to higher-interest-rate products.

    Often offers from direct banks are attractive, says Beer. “But you should definitely pay attention to a deposit guarantee according to German standards.” In addition, some banks pay monthly interest rates on the overnight money account, others quarterly, others annually. “With large sums it can be worthwhile to receive frequent interest payments, because interest rates are directly re-calculated.”

    Often the offers are limited in time or the investment is limited – another selection criterion. Fixed-term accounts are less flexible than daily available overnight deposits: you have to decide for what time the money is fixed. Another option is Federal Treasury letters. “They bring less interest than call money or fixed-term offers,” says Handstein. Beer does not consider federal securities worthwhile.

    Equities: If you are too uncertain, you do not have to buy one. However, the experts believe that even small amounts can certainly move into shares. “But you should avoid buying single stocks,” says Handstein. “Then the risk can not be spread”. In addition, stock exchange fees apply. Handstein therefore pleads for fund savings plans. “Both the risk diversification and the fee burden are justifiable there.”

    But how do I choose correctly? Marco Cabras of the German Schutzvereinigung für Wertpapierbesitz in Dusseldorf advises to look for “defensive” companies: “These are energy suppliers, pharmaceutical companies or insurers.” “You should orient yourself by what you know – German values.”

    Gold: The fear of inflation makes many people think about turning their money into gold. Beer advises against that – gold is too speculative for small assets. After all, this commodity is traded and prices can go up and down quickly. Interest does not bring the precious metal either.

    Understand and prepare: The most important thing is to understand the banking products. This includes not being forced on anything. “The product has to satisfy my demands,” says Beer. “And if I can not judge that myself, then I ask someone who has a clue, but does not want to sell me anything.”

     

     

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    Take out a loan and for or get extra money: For customers, a Frankfurt bank that dream come true. Offers above all a profession must.

    The Landwirtschaftliche Rentenbank in Frankfurt wants to pass the negative interest rates at which they can finance the capital market in the meantime to their credit customers the first bank in Germany. However, while it goes a special way. The bank, whose mission is to promote agriculture and rural development, grants development loans primarily to farmers, but only about their own bank.

    Since it becomes clear that the bank itself money can borrow on the capital market to negative interest rates, she found herself under pressure to pass on this benefit to their customers: “As a development bank we do not work for profit, but would like to pass the low-interest rate to the final borrowers,” says Horst Reinhardt, CEO of Rentenbank.

    The first idea was: Rentenbank could extend loans with a negative interest to the bank. This could pass on the loan at a small premium to farmers. About this idea, the leaders of Rentenbank discussed some time ago with representatives of other development banks such as the KfW bank. But we came to the conclusion that such an approach would be technically and legally problematic. So, at least initially will not have been all eligible banks technically able to process development loans with negative interest rates at all.

    Savings: As bank customers to defend themselves against negative interest rates

    However, the development banks have to forgive their loans “competitively neutral”, so each bank must have the same chances to pass such a loan, which would not have worked if not all were capable technically capable. In addition, legal uncertainties should have spoken against this form of transfer.

    Rentenbank has therefore opted for a different approach: They are their favorable financing conditions continue in the form of a so-called investment subsidy to the borrower. So a small gift one receives extra-speak when taking a loan. The funding grant is now available not for all development loans, but for a whole range of program loans, especially short-term.

    In extreme cases, zero percent interest per year

    This is calculated as follows: The minimum rate at which the pension Bank grants loans to the bank, currently at zero percent. The bank provides loans partly to one percent interest a year on to the borrower, which is the lowest regular rate of interest for him. But: Once, with the payment of the loan, he now rewarded with a funding grant of one percent.

    From the perspective of the farmer of the development loan for him is therefore indeed further connected to the bottom line with an interest payment. He gets the credit is not given, or even more money on it. He pays for the entire duration of the promotional loan still quite positive interest rates, although very low. However, the funding grant at the beginning may be approximately offset the interest payments.

    From the perspective of Rentenbank, however, one can certainly say that it issues as well the first institute in Germany loans at negative interest rates. Finally, she gets from the bank, in extreme cases only zero percent interest a year – and pays in addition to the final borrowers once one percent of the loan amount as a promotional grant. So for them, it is a minus business.

    So far, there had not been negative interest rates on loans in Germany. In Denmark, there were individual cases of home loans with flexible interest rates that were linked to a reference interest rate and temporarily slipped into the red. There, however, other banking fees had eaten up the advantage for the customers were.

    In the goods financing, such as buying a car, there are also negative in this country lending rates. Borrowers get into this case, but often correspondingly less discount. A funding grant as the Rentenbank there is sometimes at KfW. There, however, the money will not come from negative interest rates to refinance but have been already paid earlier from the budget of the Federation.

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