Bond issuers are an extremely wide array of sources. These sources determine their issuing categorization and assist in determinations of their risk. The short list of bond issuer categories includes Sovereigns, Semi-Sovereigns, Municipals, Agencies, Private Entities, and Corporations.
Sovereign bond issuers consist entirely of nations. Nations print their own currencies and tax their own populations, and easily exploit this to repay their bonds. They also can utilize their capital reserves, or foreign currency that they have stored for issuing payments. These abilities ensure sovereign bonds are the most secure fixed debt assets. The likelihood of governments defaulting on their own bond issues is possible, but extremely low. The wealthier a sovereign nation is the safer it can be considered as a bond issuer. Wealthier taxpayers and a stronger domestic economy ensures the nation will be stable if it has wise fiscal long term policy. These nations are the most stable and issue bonds with lower interest rates because of the low risk. Nations with lower stability must issue their bonds at higher rates than stable nations. If their bonds pay the same rate at higher risk, rational investors will pass on purchases. Sovereign Issuers can configure their bonds for issue in a wide array of options, since they have ample resources to fulfill their obligations. An example is inflation adjusting bonds, which changes principal value to match rises in the price level, then adjusts principal paid based on the new value.
Sovereign Nations are composed from Provinces or States. These entities can issue bonds to acquire financing for their projects, and fit into a category of their own. They are known as Semi-Sovereign Bonds, or Provincial Bonds. Sovereigns can utilize currency printing to repay debt, but Semi-Sovereigns cannot. Semi-Sovereign debt is inherently riskier than Sovereign debt, and usually has slightly higher rates to compensate for this risk. Note that some Nations exclude Semi-Sovereign bonds from taxation at a national level, encouraging you to invest in these bonds to spur infrastructure or other benefits. Other Nations prohibit their Semi-Sovereigns from issuing bonds. If they are restricted the nation can control which provinces can issue bonds, how many bonds are issued, or when bonds are issued by their Semi-Sovereigns to limit financial risk.
Cities within states and provinces can also issue their own bonds. These bonds are known as municipal bonds, and their security depends on the income from taxpayers versus existing debt, much like Sovereign Nations. These bonds are typically exempt from provincial taxes, and may be exempt from national taxes, depending on the policies of the nation itself. Some nations, same as Semi-Sovereigns, block cities from issuing bonds or heavily regulate bond issues to limit financial risks within their borders.
Government agencies issue bonds known as Agency Bonds. These are often neither perfectly sovereign nor corporate, but government supported while privately ran. Agency bonds come in two flavors: Government Backed and Government Sponsored. Government backed bonds will be paid for by the government directly in case of default, so they have as low a default chance as Sovereign Bonds. Government sponsored bonds will not be paid in case of default, but the Government encourages their purchase. If Government Backed, they typically pay the same rate of return as Sovereign debt since they have the same chance of default. If Government sponsored they typically pay higher rates. These government agencies may be bailed out by the government using tax dollars in case of potential default, but this is not a reliable strategy for investment.
Lastly, Private entities issue bonds that come in several flavors. Corporations issue corporate bonds, which separate into varying grades based on their risks. Those with low risks are specified as “Investment Grade”, and those with higher risks are specified as “Speculative Grade”, or “Junk Bonds”. The high risks carried by these bonds are offset by the increased yields they offer, so they are also called “High Yield Bonds”. The rating of corporate bonds is determined by Ratings agencies; the three primary agencies are Standard and Poor’s, Fitch, and Moody. The rating is based on several factors, including stability, solvency, and profitability. These ratings are the “opinion of the firm” and do not guarantee financial stability. You should always research the targeted firm as an investment, no matter the rating.
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International Economic Analysis:
- Major Currency Economic Summaries
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- Performance of Major
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- Performance Indexes of U.S Economy
- Economically Correlated U.S Dollar Projections
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- Market Wide Earnings Versus Valuations
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- Best and Worst Future Consensus Estimates
- Occasional: Firm Fundamental Strength Report
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