five things

you might not know about bonds

1 Bonds are a solemn promise A bond is a promise to pay interest at specified dates, usually every six months, and the principal at a given date In contrast to common stocks, which are units of ownership of a company and promise nothing, a bond’s promises are collectible in court if the issuer defaults

2 Enjoy the read Bonds vastly outnumber stocks One recent estimate of the number of bonds traded in New York, 38,000, vastly outnumbers the number of stocks, 1,200 to 1,600 depending on how you count foreign listings traded in the U S Each share of stock of a company is the same as every other But each bond issue is different, sometimes vastly different That means every bond purchase has to be preceded by a lot of reading of its conditions, called covenants You need to know the rank of the bond among the corporation’s obligations, the strength of the balance sheet of the issuer, and understand the company’s business

3 Bonds have records vastly longer than stocks The oldest bond known to have been traded on a North American exchange was purchased in 1624 by a Dutch woman, Elsken Jorisdochter, who picked up a 6 25% issue of water company Lekdyk Bovendams Company for 1,200 florins The bonds were finally traded and redeemed on the New York Stock Exchange by the heirs of Ms Joridochter The promise was kept

4 Compound returns can make you rich The longest bond on record, a 999-year 6 87% issue from the Kingdom of Denmark, which has a law against perpetual bonds (those with no fixed redemption date), is set to mature in 3005 If the bond, which has a call date of 2015 and will likely be redeemed then — interest rates likely being lower than at issue — were to continue to earn interest until maturity, it would make its owner a trillionaire seven times over 5 When countries default Bonds are supposed to be more secure than stocks But promises are only as good as those who make them The U S defaulted on payments of two bonds it sold to France to raise money for the rebellious colonies to battle their common enemy, Great Britain The U S has paid its bonds since then but among other developing countries, as the U S was 233 years ago, a few are more likely than not to default Top defaulter; Angola, which has been in default 59% of the years since its independence; Zimbabwe, in default 41% of its years since independence; Ecuador, in default 68% of years since its independence; and Greece, which is now in the midst of a massive restructuring equivalent to a default and has the record of being Europe’s worst deadbeat — in default 53% of years since the count began