Evan Metcalf

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78 appearances 1 recordings 1 series first heard Jun 2022 last heard Jun 2022

Evan Metcalf’s voice in public audio — every appearance, attributed to the second.

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Australian Finance Podcast · Bonds 101: how to invest in bonds & what to look out for · 22 Jun 2022 podcast

And you may also know that you're going to receive a coupon or an interest payment, effectively,

of say $5 every year over the life of that bond.

So that's known, that's fixed.

What you don't know is the price that you're gonna pay for that bond upfront.

And so the price is really what determines the yield.

So it's a little, for people used to thinking about equities, it's a little kind of backwards in terms of the fact that price and yield are inversely related.

So as price goes down, yield rises, right?

So if you're paying less for a bond, then your return on investment is going to be more because you're receiving those same fixed cash flows compared to another investor who at a different time might have paid more for that bond.

So they're going to have a lower yielding investment.

So there's a little bit of different thinking there in terms of equity investing versus bond investing.

But if you think about it that way in terms of you're just paying a certain amount for known future cash flows, then it's actually quite simple.

Maybe just firstly, in terms of how people access bonds and maybe the value that ETFs bring to that market.

There are some listed bonds that are traded on exchanges, but that's a really tiny corner of the market.

So most bonds are traded in OTC or over-the-counter markets where bond dealers will speak to each other and arrange deals or people can buy them directly from the issuers at the time of issuance.

But that's much more an institutional market.

The retail bond market is actually particularly small.

So most people for their individual portfolios really don't have much choice when it comes to buying individual bonds.

So that's where ETFs come in really handy.

So they can buy the bonds at an institutional level, package them up into a portfolio, and then sell them to investors via the stock market.

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