Friday, March 9, 2001
The Bond Book: Everything Investors Need to Know about Treasuries, Municipals, GNMAs, Corporates, Zeros, Bond Funds, Money Market Funds, and More
Annette Thau, a former bond trader and, as well, a distinguished scholar of financial markets, has added to the first edition of this book, published a decade ago. With fresh data and new material on researching and buying bonds on the web, inflation-indexed bonds and bond funds, it is a definitive guide to fixed income investments.
The treatment is U.S.-based, but the text is immensely intelligent and readily accessible to readers. On duration, which is the time value of money, Ms. Thau works the reader toward the key definition, %quote;a weighted average term to maturity of a security's cash flows.%quote; She notes that solving for duration is complex, but doable. Find the present discounted value of all of a bond's cash flows and adjust them by weight for the times that values are to be received. Duration is fundamental to understanding a bond's return. It is a concept that has no nationality.
Ms. Thau deals with other bond data that is distinctively American. She explains the distinctions between Ginnie Mae (GNMA) and Fannie Mae (FNMA) mortgage backed securities and their cousin, Freddie Mac (Federal Home Loan Bank) securities - it's ability of the asset holders to rely on US government credit in a crunch.
For a person with a bond portfolio that is anything more than Canada Savings Bonds, or who has units in a bond mutual fund, this book is an essential reference. For a book of its quality and importance, it's cheap for its price.