Bonds, Bonds, and Bonds

The bond market is booming, with investors (some say) diving into safe securities, driving bond prices up and yields down. In addition, the Fed has kept interest rates low for one of the longest periods in history. As a consequence, lots of interesting things are happening in the bond markets. For instance:

This makes sense to lock in the interest rates. What is interesting though is that investors are buying them, driving bond prices even higher and interest rates even lower. Interesting times, indeed.

Junk bond yields are not immune to the general fall in the rates of return on loans – they have dropped to 8.5%, down from 14% in May 2009.

“We’re seeing a continued return to a state of normalcy, where credit is flowing readily and banks are willing to commit capital for reasonably structured transactions,” said Peter Toal, head of leveraged capital markets for the Americas at Barclays. “That wasn’t the case a year-and-a-half ago.”

Some good news for the credit markets, at least.

In this WSJ article, we find that churches that issue bonds have a higher interest rate than a comparable entity. Really? I thought God was backing these loans…

For individual investors and congregation members—the primary clientele of church bonds—the often-overlooked debt segment can pay higher interest rates than corporate bonds and Treasurys because they aren’t generally rated, aren’t guaranteed by any government agency and are typically held to maturity. Defaults historically have been minimal, though rates have risen substantially with the recession. However, most bonds are backed by first mortgages on church property, offsetting some of the risk.

My favorite answer? “It’s hard to tell.” I wholeheartedly agree.

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