Besides hyperinflation and the government going bust, is there ANY real downside to a government bond?
What are the pros and cons of risk for bonds for businesses?
One huge downside to bonds right now is that even the riskiest government bonds, 30-year Treasuries, hardly pay anything. The going rate on 30-year Treasury bonds is 3.47%. You don't need hyperinflation to kill the purchasing power of interest payments with rates like that. The average annual inflation of 3% makes the annual effective interest rate for 30-year bonds about .50%. To put that in perspective, for every $1000 bond you might buy, your inflation-adjusted average interest payment over the life of the bond would be $5.
For businesses, bonds are awesome. They're a cheap, effective way to raise money. Definitely better than equity (stock). There isn't much downside for firms with bonds. Investors require lower rates of return than they would for equity because bonds, as a whole, are safer than equity. And as you get further in the lifespan of the bond, the value of the interest payments you make to investors shrinks because the payments are often fixed, and inflation eats away at them.
Not really. They're especially desirable if they're of an emerging or going-bankrupt country, since, if they do improve in the future, you'll earn quite a bit off of it.
The risk is really just devaluation of currency, and the fact that you have to invest the money for a long time.
bonds offer a stream of interest payments, and if they are decent, they pay you back your principle at the end of the life of the bond, but you only risk getting MORE than you if interest rates drop. And rates have already dropped.
I say the riskiest thing right now is interest rate going higher because they are currently held so low.
http://www.investopedia.com/university/b...
theres really not, bonds are safe especially compared to playing the stock market
Two part question:
Besides hyperinflation and the government going bust, is there ANY real downside to a government bond?
What are the pros and cons of risk for bonds for businesses?
