What Are Bonds?


There are two stories related to bonds which we may be looking into later this week, one is a story about bond proposals at the state level, http://www.duluthnewstribune.com/event/article/id/288778, while the other is about the local level, http://www.grandrapidsmn.com/news/article_e58d8d2e-7a49-11e3-835b-001a4bcf887a.html. Both of these may relate to the Myles Reif Center.

We will also look at a new law which may come into play here later, for more on this please refer to our previous article, http://grandrapidsvoice.com/2013/12/31/is-this-taxation-without-representation/.

More about the above in future articles. For now let’s look at what the bonds that these three stories have in common are.

According to Investopedia, http://www.investopedia.com/terms/b/bond.asp, bonds are defined as follows:

Definition of ‘Bond’

A debt investment in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period of time at a fixed interest rate. Bonds are used by companies, municipalities, states and U.S. and foreign governments to finance a variety of projects and activities.

Bonds are commonly referred to as fixed-income securities and are one of the three main asset classes, along with stocks and cash equivalents.

Investopedia Says

Investopedia explains ‘Bond’

The indebted entity (issuer) issues a bond that states the interest rate (coupon) that will be paid and when the loaned funds (bond principal) are to be returned (maturity date). Interest on bonds is usually paid every six months (semi-annually). The main categories of bonds are corporate bonds, municipal bonds, and U.S. Treasury bonds, notes and bills, which are collectively referred to as simply “Treasuries.”

Two features of a bond – credit quality and duration – are the principal determinants of a bond’s interest rate. Bond maturities range from a 90-day Treasury bill to a 30-year government bond. Corporate and municipals are typically in the three to 10-year range.

So what does this mean to us? Simply that whenever a government entity, such as a city or school district, wishes to spend money, but has none on hand, that entity issues bonds to investors and receives funds in the form of a loan. This loan is then paid back, along with interest, by the taxpayers. We can look at this as a way to spend tomorrow’s money today, much like an individual using a credit card to purchase ahead of the paychecks.

Please read the articles linked above, then leave any comments and questions below. We will continue with this at more depth after we see what questions come in.

5 thoughts on “What Are Bonds?

  1. Pingback: Funding for the Reif Center | Grand Rapids Voice

  2. Pingback: Do You Hate the Reif Center? | Grand Rapids Voice

  3. Pingback: Bond, Municipal Bond. | Grand Rapids Voice

  4. J

    Joe is right on here in his analysis of this process and is exactly what needs to be addressed in the city of Grand Rapids. Havi
    ng a Council member who is Director of the bank in question or any other bank always leaves the door open to the question of who is he or she most loyal too the employer or the City. Again with the Mayors wife employed also by a bank this question must be addressed. The real question is do these type of conflicts of interest enter into the realm of criminal issues of reciprocity that should require State or Federal investagation.

    Like

  5. Joe Maurer

    Good article Mike! I was thinking about something I dug up, years ago and was wondering if you wanted to look into it with greater detail. I was looking at the city and counties finance report and noticed a sizable amount of money in the “slush, emergency fund” and asked to question how much is too much and why does the city and county have “funds” for some of same things? At that tine they had almost 6 months of operating cost in a zero percent bank account. I asked why not pay off a portion of some loans? I was told we could not pay off loans earlier as we signed an agreement with the bank! Guess which one! I understand the concept or emergency funds but couldn’t you do the same thing with a line of credit at a bank and then give the funds back to taxpayers? I started looking at the whole state and it seemed so repetitive and entirely too much Emergency money drawing zero interest. What do you think?

    Date: Mon, 20 Jan 2014 13:08:29 +0000To: joemaurer3@msn.com

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s