Which bond should I get? AAA 10 years, AAA 5 years...?

Question

If I would like to restrict the interest rate risk and the default risk, which one will fit my criteria?
AAA 10 years to maturity
AAA 5 years to maturity
BBB Perpetual Bond
BBB 10 years to maturity or 5 years

Answer 1

Is this question from a test?

You have a lot of bond questions...but this one seems as if you should know the answer intuitively.....email me if you want more info on bonds.....

To answer your question:
Interest rate risk is the risk of rates rising over time...so you want a shorter rather than longer term bond....and, the least default risk means you want the highest credit quality....so, combining those 2 attributes give you the answer of AAA 5 yr bond...

Answer 2

AAA 5 years to maturity

The shortest maturity and highest quality always reduce the interest rate and default risk.

Answer 3

Out of all those. The AAA 5 year is the least risky.

Other than those, I would recommend money market funds.

Answer 4

Personally, we are in a rising rate enviorment. So when you buy your bonds, they will drop in value as bonds with higher paying interest rate bonds come out.

Me, I am keeping my fixed income as short term as possable. You can get 5% interest from the e-savings account through citibankonline.com When rates look to stop rising and start dropping in about 1 to 2 years, then start buying bonds again.

If you want BBB, only buy it in a bond fund.

Answer 5

You always want to go with AAA and the lowest term right now. Do some checking, see Suze Orman's books and website.

Answer 6

higher quality shorter maturity...

http://finance.yahoo.com/bonds


GMAC Bank money market rate equals 4.8%, one year CD equals 5.56%

www.GMACBank.com