# Bonds and "risk-free" investing



## ppmoore (26 Apr 2005)

Looking for some advice or pointers...

I recently read a short article in a magazine about government bonds. Does anyone know anything about investing in bonds and why they are supposedly "risk-free"? Surely the price of bonds can rise and fall just like anything else (even property prices). 

I sold my house end of last year, and have the proceeds parked in a bank acount. If I look at a future worse-case future scenario and real-estate foreclosures cause an Irish banking crisis (all Irish banks these days make their money by borrowing on the international money markets to finance the house mortgage boom), I was thinking of putting my money into something like bonds. 

Many thanks,
Polo


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## demoivre (26 Apr 2005)

They are risk free in the sense that bonds are backed by government - in essence if you buy a bond for €100 at  3 % per annum for 5 years you are guaranteed to get a return of 3% per year and you will get your € 100 back after 5 years. However bonds are a fixed interest instrument so inflation will erode the purchasing power of your return. Also the price of bonds varies inversely with interest rates so that rising interest rates ( higher bond yields ) will make existing bonds less attractive. Who on the secondary market ( if you decide to sell before the 5 years has elapsed ) is going to give you € 100 for your bond if new € 100 issues are yielding say 4 % as a result of interest rate rises ? Nobody but if you hold on to it for the 5 years the gov. will give you your 100 euro back.
I 've over simplified the example  but that's the general idea.


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## ClubMan (26 Apr 2005)

The [broken link removed] has some information about _Irish Government Bonds/Gilts _in case that's of any interest.


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## ppmoore (27 Apr 2005)

Thanks for the replies!

Much appreciated, Paul


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## RainyDay (27 Apr 2005)

It is also possible to buy bonds issued by specific companies (instead of Govts). These are generally viewed as slightly more risky than Govt bonds, but less risky than equities.


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