For decades, fixed-income securities like bonds have been considered the safest zone for investment. Everyone mainly believed it and invested by big financial institutions and investors.
The bond market pushes the economy forward for governments worldwide to pump more and more money to develop infrastructure and boost incentives to drive sick industries and give welfare measures to the people.
Everyone believes bonds are the safest investment compared to equity shares, commodities, and currencies because we get a fixed rate of return in the future for today’s agreed interest rate if we buy.
The world bond market is valued at around US$ 51 trillion.
Everyone knows bonds can’t beat the inflation rate by the return on investment they had made, but without keeping their money ideal and seeking the safest and secure return on the capital amount they had invested.
But the twist of heavy losses on bond trade led to the collapse of Silicon Valley Bank and Credit Suisse, raising alarm bells on bond market safety to erase our capital invested.
Risky factors to avoid considered before investing in bonds
The capital sources
The source capital of the amount we acquired for investment should have no burden to return until the maturity date of bonds, and we should not have any pressure to return it in the middle of the period. We should be in a mindset before buying bonds that we should be ready to wait until the maturity period.
Economy analysis
How hard we are committed to staying till the end for investment, but our other business needs an urgent capital requirement. It may run into losses, or our investors may draw the amount they had given us because their other business is struggling with the economic slowdown. So, we should do a soundful financial analysis before investing in bonds. Every 10 to 12 years, the world would see mild or significant economic rescissions. At a minimum, every three years, we can see an economic correction in some countries caused by droughts, floods, some government critical implementations of new policies, and trade wars; these create some breakages to the circular economy. So, in these situations, the central bank interest rates are high volatile . We should invest in bonds regularly days and try to avoid these critical days because we should not have any pressure on our capital from investors or our other businesses. If we decide to sell in the middle, we can lose some of our money.
Analysing and predicting future outcome of central bank decisions
Suppose we are good at economic analysis by studying industrial output, jobs data, inflation and GDP, global economy, and home currencies related to US$. We can get a good idea when the central bank raises or decreases its interest rate. So, we should plan and buy at the right and stay invested until the bond’s maturity before making an investing decision.
Trade
We should not buy and hold trade bonds, but if our bonds get the best profit margin from the changes of central bank interest rates from time to time and our bonds may not get the best deal in the future by our economic analysis, then we can sell and get a profit and save a time duration.
