The Bond Book, Third Edition: Everything Investors Need to Know About Treasuries, Municipals, GNMAs, Corporates, Zeros, Bond Funds, Money Market Funds, and More / Edition 3

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Everything on Treasuries, munis,

bond funds, and more!

The bond buyer’s answer book—updated for the new economy

“As in the first two editions, this third edition of The Bond Book continues to be the ideal

reference for the individual investor. It has all the necessary details, well explained and

illustrated without excessive mathematics. In addition to providing this essential content, it

is extremely well written.”

—James B. Cloonan, Chairman, American Association of Individual Investors

“Annette Thau makes the bond market interesting, approachable, and clear. As much as

investors will continue to depend on fixed-income securities during their retirement years,

they’ll need an insightful guide that ensures they’re appropriately educated and served.

The Bond Book does just that.”

—Jeff Tjornejoh, Research Director, U.S. and Canada, Lipper, Thomson Reuters

“Not only a practical and easy-to-understand guide for the novice, but also a comprehensive

reference for professionals. Annette Thau provides the steps to climb to the top of the bond

investment ladder. The Bond Book should be a permanent fixture in any investment library!”

—Thomas J. Herzfeld, President, Thomas Herzfeld Advisors, Inc.

“If the financial crisis of recent years has taught us anything, it’s buyer beware. Fact is, bonds

can be just as risky as stocks. That’s why Annette Thau’s new edition of The Bond Book is

essential reading for investors who want to know exactly what’s in their portfolios. It also

serves as an excellent guide for those of us who are getting older and need to diversify into

fixed income.”

—Jean Gruss, Southwest Florida Editor, Gulf Coast Business Review, and

former Managing Editor, Kiplinger’s Retirement Report

About the Book

The financial crisis of 2008 caused

major disruptions to every sector of

the bond market and left even the savviest

investors confused about the safety of

their investments. To serve these investors and

anyone looking to explore opportunities in

fixed-income investing, former bond analyst

Annette Thau builds on the features and authority

that made the first two editions bestsellers

in the thoroughly revised, updated, and

expanded third edition of The Bond Book.

This is a one-stop resource for both seasoned

bond investors looking for the latest information

on the fixed-income market and equities

investors planning to diversify their holdings.

Writing in plain English, Thau presents

cutting-edge strategies for making the best

bond-investing decisions, while explaining

how to assess risks and opportunities. She also

includes up-to-date listings of online resources

with bond prices and other information.

Look to this all-in-one guide for information on

such critical topics as:

  • Buying individual bonds or bond funds
  • The ins and outs of open-end funds,

    closed-end funds, and exchangetraded

    funds (ETFs)

  • The new landscape for municipal bonds:

    the changed rating scales, the near

    demise of bond insurance, and

    Build America Bonds (BABs)

  • The safest bond funds
  • Junk bonds (and emerging market bonds)
  • Buying Treasuries without paying

    a commission

From how bonds work to how to buy and sell

them to what to expect from them, The Bond

Book, third edition, is a must-read for individual

investors and financial advisers who want

to enhance the fixed-income allocation of their


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Product Details

  • ISBN-13: 9780071664707
  • Publisher: McGraw-Hill Professional Publishing
  • Publication date: 11/19/2010
  • Edition number: 3
  • Pages: 400
  • Sales rank: 388,954
  • Product dimensions: 6.74 (w) x 11.70 (h) x 1.43 (d)

Meet the Author

Annette Thau is a former municipal bond analyst for the Chase Manhattan Bank

and a visiting scholar at the Columbia University

Graduate School of Business. She has

written many articles for the AAII Journal and

lectured to groups nationwide. In November

2009, she was a featured speaker at the national

meeting of the American Association of

Individual Investors.

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Table of Contents




Chapter 1 The Life of a Bond 3

First, What is a Bond? 3

How Bonds Are Issued and Traded 3

Key Terms for Bonds 4

Chapter 2 The Bond Market: An Overview 7

The Bond Market: An Overview 7

Bond Pricing: Markups and Commissions 8

How Bonds Are Sold: Dealers, Brokers, and Electronic Platforms 11

Terms Used in Buying, Selling, and Discussing Bonds 17

Chapter 3 Volatility: Why Bond Prices Go Up and Down 25

Interest Rate Risk, or a Tale of Principal Risk 25

Credit Ratings: How Credit Quality Affects the Value of Your Bonds 31

A Short History of Interest Rates 43

The Federal Reserve and Interest Rates 48

Summary 50

Chapter 4 How Much Will I Earn, or Basic Bond Math 51

Bond Cash Flows 51

The Many Meanings of Yield 55

Total Return 62

Duration and Bond Price Volatility 65

Summary 71

Chapter 5 What You Need to Know before Buying Bonds 73

The Bond Market in the Financial Press and on the Internet 73

The Treasury Market 74

"Yield Spreads" and Benchmarks 81, and 85

Summary 94


Chapter 6 Treasuries, Savings Bonds, and Federal Agency Paper 99

What is Unique about Treasuries? 100

Treasury Bills, Notes, and Bonds 102

Inflation-Indexed Securities 105

Buying Treasuries: TreasuryDirect 110

Zero Coupon Bonds 112

U.S. Savings Bonds 117

Federal Agencies 124

Summary 126

Chapter 7 Municipal Bonds 129

What is Unique about Municipal Bonds? 129

Should I Buy Munis? (or, Taxable-Equivalent Yield) 130

Credit Quality: General Obligation versus Revenue Bonds 133

The Rise and Fall of Bond Insurance 136

"Recalibrations" of Municipal Bond Ratings 139

Municipal Bond Pricing 147

Shopping for Municipal Bonds Using the Internet 149

Selecting Municipal Bonds 165

Summary 169

Additional References 170

Appendix: The New York City Default 170

Chapter 8 Corporate Bonds 173

What is Unique about Corporate Bonds? 173

Risk Factors of Corporate Bonds 175

Corporate Bonds with Special Features 178

Junk Bonds 181

Shopping for Corporate Bonds Using the Internet 186

Summary 202

Chapter 9 Mortgage-Backed Securities 205

Why GNMAs Are Unique 206

How Prepayments Affect GNMA Cash Flows 211

The Vocabulary of GNMA Returns 213

CMOs and Other Sons of GNMA 224

Agency Backing of Mortgage-Backed Securities: Ginnie, Fannie, and Freddie 229

Collateralized Debt Obligations (CDOs) and Collateralized Debt Swaps (CDSs) 232

The Financial Crisis: 2007-2008 235

Current State of the Mortgage-Backed and Asset-Backed Securities Market 236

Summary 239

Additional References 241

Chapter 10 International Bonds 243

The International Bond Market: An Overview 244

Currency Risk 248

Emerging Markets Debt: Brady Bonds 250

Buying Individual International Bonds 254

Is There a Case for Investing in International Bonds? 260

Obtaining Information on International Bonds 261

Summary 262


Chapter 11 Bond Mutual Funds: An Overview 265

Differences between Bond Funds and Individual Bonds 265

How Much Will I Earn? 267

The Costs of Investing in Bond Funds 273

Why the NAV of Your Fund Will Go Up and Down 277

Selecting, Buying, and Monitoring Bond Funds 285

Sources of Information Concerning Bond Funds 288

Taxes and Bond Funds 297

Summary 299

Chapter 12 Money Market Funds and Tax-Exempt Bond Funds 301

Money Market Funds 301

Bond Funds Whose Price Goes Up and Down: "Plain Vanilla" and More Speculative Funds 310

Municipal Bond Funds 314

Summary 324

Chapter 13 Taxable Bond Funds 327

Domestic "Plain Vanilla" Taxable Bond Funds 328

Treasury Inflation Protected Securities Funds 336

GNMA (and Other Mortgage) Funds 339

More Speculative Funds 341

Miscellaneous Funds 354

Summary 358

Chapter 14 Closed-End Bond Funds, Exchange-Traded Funds (ETFs), and Unit Investment Trusts 361

Closed-End Bond Funds 361

Summary: Closed-End Funds 372

Sources of Information on CEFs 373

Exchange-Traded Funds 374

Advantages and Disadvantages of Bond ETFs 385

Summary: Exchange-Traded Funds 390

Unit Investment Trusts 392

Summary: Unit Investment Trusts 394


Chapter 15 Management of Bond Portfolios 397

When Will I Need the Money? 398

Portfolio Structures 399

Finding Attractive Buy Points 401

Swaps 405

Managing a Bond Portfolio for Total Return 407

Chapter 16 Portfolio Allocation 411

Portfolio Allocation 411

Asset Allocation 413

The Case for Bonds Revisited 414

The Current Environment and the Bond Market 415

Conclusion 419

Index 421

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  • Posted June 20, 2011

    Before You Buy Bonds Read This

    Well written. Comprehensive. Tells you just about everything you need to know before investing in bonds.

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