The Average Bond Rate
Bonds are debt securities issued by corporations and government entities. As marketable securities, the current interest rates on bonds will change with the economic outlook for interest rates and the credit quality of the individual issuers. Several bond types exist, ranging from the very safe U.S. Treasury bonds through high-yield corporate bonds with low ratings, otherwise known as junk bonds.
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Types of Bond Rates
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The primary reference bond rate is the current rate on the 10-year Treasury note. Other types of bonds are often analyzed for the interest rate spread over the 10-year Treasury. Other important bond rates are investment grade corporate bonds and high-yield corporate bonds. Municipal bonds are issued by state and local governments. The current rate of the different bonds is based on the term of the bonds and credit rating of the issuer.
Resources
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Investors interested in the current interest rate for different classes of bonds can use several online resources. The U.S. Federal Reserve provide a Web page with daily updates of a wide range of interest rates including Treasury rate, Moody's Aaa and Baa rated corporate bonds. The Investing in Bonds.comS website has index rates for investment-grade and high-yield corporate bonds in the Corporate Market at a Glance section. "The Wall Street Journal" provides a breakdown of current municipal bond rates by credit rating and maturity (see Resources).
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Average Bond Rates
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The rates for the bond market change daily, based on supply and demand as well as investors' predictions concerning interest rates and economic activity. The daily rates are a one-time picture of bond rates and just show the relationship between the different types of bonds. Here are the representative rates reported in the third week of January 2011:
10-year Treasury rate: 3.37 percent.
Investment Grade Corporate Bond Index: 4.71 percent.
High-Yield Corporate Bond Index: 7.97 percent.
AA rated Municipal bond, 20-year maturity: 5.07 percent.
Bond Rates and Prices
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Bond are issued with a fixed rate of interest payment called the coupon rate. An investor owning a bond will receive a level amount of interest. The bond market adjusts for fluctuating rates by changing bond prices. If interest rates rise, bond prices decline. Falling interest rates results in rising bond prices. For investors, a level or declining rate environment is more profitable than if bond rates are increasing.
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References
Resources
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