Understanding Investing

Bonds for Income

PIMCO's Your Money at Work educational video series provides a dynamic overview of the fundamentals of bond investing. This video explains how an income fund can offer the potential for higher yield while preserving capital.

More from this section

Read Transcript

VO:Your Money at Work. Insights that can help you build a more secure future. Brought to you by PIMCO.

People invest for many reasons. No matter what your personal financial goals may be, to reach them, you need to make sure your money is working hard and working smart. But with today’s complex global markets and so many investment choices available, it can be hard to decide what’s right for you. Understanding a few basic concepts can help you make more informed decisions about investing. This video will help you get started.

Bonds for Income. Earning income is an important goal for many investors, and they have often relied on bonds to help them achieve it. Bonds are issued by governments and companies to raise capital. When you buy a bond, you are lending money to the issuer who agrees to pay back your original investment, known as the principal, at a specific time, and in most cases, to make regular interest payments along the way. Those payments can provide a valuable source of income for investors at all stages of life. Retirees may use the income for living expenses. Younger investors may keep the income or reinvest it to help build their wealth.

The most common ways to think about a bond’s income potential are coupon rate and yield. Let's talk about coupon rate first. Coupon rate is the fixed amount an issuer promises to pay each year. For example, a treasury bond with a face value of $1,000 and a coupon rate of 2% would pay $20 per year. The prices of bonds can rise and fall, but the coupon rate remains constant. That brings us to yield, which is often more meaningful to investors.

A bond’s yield is the rate of income it pays based on its current market price. Think about that treasury bond again. Let's say the price of that bond dropped from $1,000 to $800. The coupon rate is still 2%, so the bond still pays $20 per year, but a $20 interest payment on a bond that costs $800 equals a 2.5% yield. What if the price of a bond rises? Let's say the price of the bond went from $1,000 to $1,250. The investor would still earn $20 in interest, which equals a yield of just 1.6%. Given the choice, would you rather invest in a bond with a low yield or a higher yield? It’s natural to want the most return from an investment, so it may be tempting to choose bonds that offer the highest yield, but it’s important to consider the risks.

Bonds that pay higher yields typically carry greater risks. These risks can include default, which means that the issuer is unable to pay the interest or original amount invested when it’s due. Another risk is volatility, which is how much the bond’s price and yield fluctuate. Investors who choose bonds solely for high yield may be taking on more risk than they had anticipated, so careful research is important in selecting bonds with the right risk return balance for you. Right now, yields on U.S. Treasury Bonds are near record lows, and this challenging environment may be forcing investors to look beyond this traditional source of income. Fortunately, they have plenty of options. Income-generating bonds are issued by governments all around the world and by companies in every industry sector. In fact, U.S. Treasury Bonds only make up about 13% of the 90-trillion-dollar global bond market.

If investing in bonds for income seems like a good idea, what’s the best way to go about it? For many people, a mutual fund that invests in income-generating bonds makes sense. A professional portfolio manager will research and select bonds on your behalf, seeking income opportunities while managing risk throughout the global bond market. An income fund can help you pursue the potential for higher yield while also preserving capital.

Helping your money work harder and smarter while you achieve your financial goals.

Filters: Reset All

Filters

Close Filters Dropdown
  • Tags

    Reset

    Close
  • Category

    Reset

    Economic and Market Commentary
    Investment Strategies
    Bond by Bond
    Viewpoints
    Careers
    Education
    PIMCO Foundation
    View from the Investment Committee
    Close
  • Order By

    Reset

    Alphabetical
    Most Recent
    Close
() filters applied

Multimedia Finder

Filter By:
  • Economic and Market Commentary
  • Investment Strategies
  • Bond by Bond
  • Viewpoints
  • Careers
  • Understanding Investing
  • View from the Investment Committee
  • A
  • B
  • C
  • D
  • F
  • G
  • H
  • I
  • K
  • M
  • P
  • R
  • S
  • T
  • W
Clear
Tina Adatia
Fixed Income Strategist
Olivia A. Albrecht
Head of ESG Business Strategy
Joshua Anderson
Head of Global ABS Portfolio Management
Robert Arnott
Founder and Chairman, Research Affiliates
Andrew Balls
CIO Global Fixed Income
Justin Blesy
Asset Allocation Strategist
David L. Braun
Head of US Financial Institutions Portfolio Management
Erin Browne
マルチアセット戦略担当ポートフォリオ・マネージャー
Libby Cantrill
Executive Office, Public Policy
Stephen Chang
Portfolio Manager, Asia
Pramol Dhawan
Head of Emerging Markets Portfolio Management
Joachim Fels
Global Economic Advisor
David Fisher
Head of Traditional Product Strategies
Adam Gubner
Portfolio Manager, Distressed Debt
Daniel H. Hyman
Head of Agency MBS Portfolio Management
Daniel J. Ivascyn
Group Chief Investment Officer
Mark R. Kiesel
CIO Global Credit
Jason Mandinach
Credit Strategist, Mortgage Strategies
Scott A. Mather
CIO U.S. Core Strategies
Mohit Mittal
Portfolio Manager, Liability Driven Investment and Credit
James Moore
Alfred T. Murata
Portfolio Manager, Mortgage Credit
Sonali Pier
Portfolio Manager, Multi-Sector Credit
Steve A. Rodosky
Portfolio Manager, Real Return and Long Duration
Emmanuel Roman
Chief Executive Officer
Steve Sapra
Client Solutions & Analytics
Jerome M. Schneider
Head of Short-Term Portfolio Management
Marc P. Seidner
CIO Non-traditional Strategies
Sapna Shah
Head of Corporate Responsibility
Greg E. Sharenow
Portfolio Manager, Real Assets
Anmol Sinha
Fixed Income Strategist
Cathy Stahl
Global Head of Marketing
Geraldine Sundstrom
Portfolio Manager, Asset Allocation
Richard Thaler
シカゴ大学ブース・スクール・オブ・ビジネス 経済学・行動科学専門特別教授
Jessica K. Tom
Senior Credit Analyst
Tiffany Wilding
North American Economist
Andrew T. Wittkop
Portfolio Manager, Treasuries, Agencies, Rates
PIMCO
Chris Brightman
  • Alphabetical
  • Most Recent
Section : Date : Experts :
Reset All
Outlook for Private Credit Markets: Finding Opportunities amid Dislocation
Outlook for Public Credit Markets: Value Still to Be Found
Straight From PIMCO: Our Take on the TIPS Market
What’s Ahead for the Economy and Markets: Key Highlights
Straight from PIMCO: The Impact of TALF on Structured Credit
Viewpoints

Straight from PIMCO: The Impact of TALF on Structured Credit

Straight from PIMCO: The Impact of TALF on Structured Credit

Josh Anderson, head of Global ABS Portfolio Management, discusses the benefits and limitations of the U.S. government’s latest Term Asset-Backed Securities Loan Facility (TALF) for structured credit markets, and where PIMCO sees opportunities ahead.

MORE ON MARKET VOLATILITY

20 Years of PIMCO’s Investment Grade Credit Bond Strategy

Load more results Load {{cCtrl.fetchResults}} more results