The money raised by the issue of bonds plays an integral role in the infrastructural development of an economy. The money is used by public and private agencies for work such as the building of roads, improvement of the education system, the opening of new factories and so on.
The bond market in the US is huge with a value of $27 trillion. This makes it the largest securities market in the world. Bonds are sold in the primary and secondary markets. Primary bond markets buy and sell new issues of bonds whereas secondary bond markets buy and sell already issued bonds. Some bonds are easier to buy and sell than others. Investors trade in bonds every trading day.
You can buy and sell treasury and savings bonds in two ways – by dealing directly with the US government or through a brokerage firm. You can buy new issues of treasury bonds at the US Treasury Department’s website through an auction. For this, first you need to set up an account on the website. Once the bonds are bought, you can either hold them or sell them through the website on the secondary market.
Savings bonds can be bought from the government, brokers and banks. Many workplaces also have programs where you can invest in savings bonds through the payroll deduction. You can redeem your bonds at banks and other financial institutions who act as paying agents for US savings bonds.
You can purchase corporate and municipal bonds through brokerage firms, online brokers, investment and commercial banks. These bonds are available in the primary and secondary market. When you buy and sell corporate and municipal bonds through a broker, you generally have to pay a fee for services rendered.
Bond swapping is another way of buying and selling bonds. Here you sell a bond and simultaneously buy another one with the money you have made from the sale. Bond swapping can help you increase the value of your portfolio and total return. You can also take advantage of interest rate changes and lower your taxes.
Fixed-income securities are your best bet for swapping. This is because it is normally easy to find securities that have similar price, credit quality, maturities and coupons. You can swap bonds for quality, where you sell a bond with lower credit rating for one with higher credit rating. You might also want to swap bonds for a higher yield. So you sell a short-term bond for a long-term one or vice versa. The most common reason for bond swapping is to lower taxes. If you have a bond that is selling below the purchase price, you can sell that bond and buy another with similar features. The quality of the bond, yield, and maturity will be the same as before but you will have realized a loss that will save you tax in the year you make the sale of the bond.