Can bonds or debentures be bought and sold like stocks, and how does their market value change over time?
Curious about bonds and debentures
Yes, both bonds and debentures can be bought and sold in the market, but their trading process and market dynamics differ from stocks.
1. Trading Process:
Bonds: Bonds are typically traded overthecounter (OTC) or on bond markets. OTC trading involves direct transactions between buyers and sellers, often facilitated by financial institutions. On bond markets, bonds are traded through organized exchanges.
Debentures: Debentures are also traded in the bond market but can be listed on stock exchanges. Listed debentures can be bought and sold through the exchange like stocks.
2. Market Value Change:
Bonds: The market value of bonds can change over time based on various factors, including interest rates, credit rating changes, economic conditions, and the issuer's financial health. When interest rates rise, existing bonds with lower yields become less attractive, leading to a decrease in their market value. Conversely, when interest rates fall, existing bonds with higher yields may become more valuable.
Debentures: Like bonds, the market value of debentures can also be influenced by interest rates, credit ratings, and market conditions. However, if a debenture is listed on a stock exchange, its value may be affected by factors that impact stock prices, such as the company's performance, industry trends, and market sentiment.
It's important to note that bonds and debentures are debt instruments, meaning investors lend money to the issuer in exchange for regular interest payments and the return of the principal amount at maturity. Unlike stocks, which represent ownership in a company, bonds and debentures are financial instruments used for raising capital by corporations and governments.
Before investing in bonds or debentures, it's crucial to understand their specific features, risks, and potential rewards. Consulting with a financial advisor can help you make informed decisions based on your financial goals and risk tolerance.