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If I'm buying bonds at a certain value, and later on the market value drops (the company or country is in trouble, for example), but I still believe they would be able to pay – do I have anything to worry about?

If I'm buying bonds and they reach to their "maturity" date, will I get the money automatically from my bank / investments company?

Chris W. Rea
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yellowblood
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4 Answers4

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You ask two questions -

First - the market value can drop for two reasons (that I know), the company itself may have issues, and investors don't trust they'll be paid, or a general rise in interest rates. In the latter case, there's little to worry about, but for the former, well, that's your decision, you say "the company is in trouble" yet you believe they'll pay. Tough call.

Second - yes, when a bond matures, the money appears in your account.

JoeTaxpayer
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You ask two questions, which I answer in order.

  1. You may or may not have something to worry about. The fact that the market value has dropped could mean either that interest rates in general have risen (you may suffer regret, but no reason to worry) or that the credit quality of the issuer has deteriorated (you are less likely to get your money back). In the case of the latter, you write "but I still believe they would be able to pay." That's nice, but does the market agree? Perhaps the market knows something you don't. Or, perhaps you know something the market doesn't, in which case this is actually an opportunity (to buy more).
  2. When the bond matures, your bank or investment company will handle the payment from the issuer to your account (provided the issuer does not default, of course).
Tal Fishman
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The reason the market value is low is because the market does not believe that the company or country will pay. Another reason for it to go down is lack of liquidity in the market.

However if you believe that the conditions would improve by the time bond matures, and you don't need money right now, then you can wait for maturity and get the maturity value.

duffbeer703
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Dheer
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Yes, if you want income and are willing to commit to hold a bond to maturity, you can hold the bond, get the scheduled payments, and get your principal returned at the end. US Savings Bonds are non-marketable (you cannot trade them, but can redeem early) bonds designed for this purpose.

The value of a marketable bond will vary over its lifetime as interest rates change and the bond matures. If you buy a 30 year US Treasury bond at par value (100) on September 1, 2011, it yielded 3.51%. If rates fall, the value of your bond will increase over 100. If rates rise, the value will decrease below 100.

How much the value changes depends on the type of bond and the demand for it. But if your goal is to buy and hold, you don't need to worry about it.

duffbeer703
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