How to Research and Buy Bonds

Simple Tips for Bond Investors

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You don't have to be an investing expert to do your own bond research and buy the best bonds. All the knowledge, terms, and complexity involved with bond markets can be accessed. It can be made simple with a handful of simple strategies and a few useful websites.

There are bond analysts and credit agencies who do most of the work for you, so you only have to know where to look and how to interpret the information.

Key Takeaways

  • You don't have to be a bond expert to buy and trade bonds. But you do need to have a clear understanding of their key factors.
  • View the ratings of any bonds you're thinking about buying. Look at those that the pros pick.
  • Use mutual fund websites to learn what bonds are part of a successful fund's portfolio.
  • Mistakes to avoid when choosing bonds include buying only high-yield bonds, buying bonds with roughly the same maturity, and not shopping around for the best price.

View the Ratings

Most of the hard part of researching bonds is done for you by three bond rating agencies: Standard and Poor's, Moody's, and Fitch. Much like people have credit reports that detail their creditworthiness, institutions that issue bonds have ratings based on their ability to make interest payments and return the principal in full. The ratings are listed below:

Bond Ratings
  Moody's Standard & Poor's Fitch
Investment Grade Aaa AAA AAA
  Aa1 AA+ AA+
  Aa2 AA AA
  Aa3 AA- AA-
  A1 A+ A+
  A2 A A
  A3 A- A-
  Baa1 BBB+ BBB+
  Baa2 BBB BBB
   Baa3 BBB- BBB-
 Junk Ba1 BB+ BB+
  Ba2 BB BB
  Ba3 BB- BB-
  B1 B+ B+
  B2 B B
  B3 B- B-
  Caa1 CCC+ CCC+
  Caa2 CCC CCC
  Caa3 CCC- CCC-
  Ca CC CC
  C C C
    D D

Study the Professionals

Pay close attention to what professional investors pick. Begin your bond research by taking a look at the portfolio holdings of some of the best bond mutual fund managers in the world. They have experience and they tend to have good judgment. They also have teams of analysts to help them pick bonds.

Bill Gross is probably the best known bond fund manager in the world. He managed the largest bond fund portfolio, PIMCO Total Return (PTTDX), and a few others, such as Harbor Bond (HRBDX).

Dan Fuss, known for managing Loomis Sayles Bond (LSBRX), has 50 years of experience investing in bonds. He's also a good person to follow. He's not a specialist. His knowledge is both deep and wide; he invests in almost every type of bond. Fuss can even dig into the high-yield (junk) area of the bond world, so his picks can give you some ideas that many other managers won't provide.

Sites for Research

You'll find bond holdings information on most mutual fund research sites. You can type in the ticker symbol of a bond mutual fund on Morningstar's website and go to that fund's main information page. Find the link to "Portfolio." Follow the link to "Holdings," where you'll find a list of the fund's top 25 bond holdings.

There are also sites such as Yahoo! Finance where you can learn more about bonds. Check prices before you make a purchase.

Common Mistakes to Avoid

One of the most common mistakes people make when investing in bonds is reaching for too much yield. Advanced and beginning investors can both make the mistake of researching and buying only high-yield bonds.


Higher rates of interest are good. But these high yields come with default risk.

The higher the yield, the higher the risk of default by the issuing institution tends to be. This is similar to someone paying higher interest rates on borrowing. Higher rates are applied to higher-risk borrowers. You may earn more interest if all of your bonds are high-yield. But you may also lose your principal if the issuing entity declares bankruptcy and is unable to pay back your initial investment.

Bond investors also make the mistake of overlapping similarities in maturities, bond types, or industry. You may not be adequately diversified if you have many different bonds in your bond portfolio. Try to have differing maturities like one-year, five-year, 10-year, 30-year differing bond types, such as Treasury, municipal, corporate, and high-yield bonds. Look for differing industries among corporate bonds, such as financial, health, manufacturing, and retail.

And be sure to shop around until you find the best price. Bonds have markup prices. This means there are broker commissions built into the price. But it isn't mandatory that you pay the full markup. The prices are somewhat negotiable. A bond that's being sold for $1,010 from one broker may be bought for $995 from another. Try not to pay more than the most recently traded price.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Fidelity. "Bond Ratings."

  2. The Wall Street Journal. "Loomis Sayles’s Star Fund Manager Is Going Strong, but He’s Also 86."

  3. Standard and Poor's. "S&P Global Ratings Definitions."

  4. Morningstar. "Bond Trading Transaction Costs."

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