Bond Investment Analysis: Government Securities & Investor Impact

This report provides an analysis of bond investments, focusing on a specific municipal bond and evaluating its current yield, yield to maturity, and credit rating. It assesses whether the bond is investment-grade and examines its exposure to interest rate risk. Furthermore, the report discusses the key roles of federal, state, and local governments in issuing securities within the financial market, detailing how these decisions impact investors. The analysis covers the government's influence on money supply, interest rates, and local economies through the issuance and management of bonds, highlighting the subsequent effects on investor returns and the overall financial market dynamics.

Running head: FINANCE
Finance
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
Providing a description of the bond, the bond’s current yield, and the bond’s yield to
maturity, and the bond’s credit rating:.......................................................................................2
Indicating whether the bond is an investment-grade bond:.......................................................2
Indicating whether the bond will experience much interest rate risk:.......................................2
Indicating the key roles of federal, state, and local governments issue securities in the
financial market:.........................................................................................................................2
Indicating how these decisions affect an investor:.....................................................................4
References:.................................................................................................................................5

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Providing a description of the bond, the bond’s current yield, and the bond’s yield to
maturity, and the bond’s credit rating:
Particular Values
Description of the bond 2004 PLAINFIELD IND CMNTY HIGH SCH BLDG CORP
Bond’s current price $99.67
Bond’s current yield 2.375%
Bond’s yield to maturity 2.50%
Bond’s credit rating AA+
Indicating whether the bond is an investment-grade bond:
The bond is considered as an investment grade, due to its rating and overall security
that is being provided by the municipal bond. The high rating and the overall yield rate
directly indicate the possibly income that will be generated till 2027 (Finra-
markets.morningstar.com, 2018). However, the investment can be conducted for securing the
investment, as it will not generate high return from investment.
Indicating whether the bond will experience much interest rate risk:
The interest rate risk is relevantly lower for municipal bonds, which does not increase
the risk of bonds. In addition, the overall pricing of the above bonds has mainly hovered from
$98.83 to $99.78. This relevantly indicates that the interest rate risk will not adequately affect
the process of the bond and negatively impact investor’s exposure in the bond market.

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Indicating the key roles of federal, state, and local governments issue securities in the
financial market:
The financial market is regulated by government, states and federal reserves, which
help in improve its functioning capability. In addition, the financial market relevantly
improves the level of operations by conducting fiscal and monetary policies. In addition,
federal, state, and local governments issue securities for accumulating the relevant level of
capital that can support their expenses. The rising level of bonds issued by government
directly increases the level of cash supply in the market. Fontana and Scheicher (2016)
mentioned that change in monetary policy would directly result in the cash supply of the
economy, which influences the financial market of country.
Decreasing money supply:
The federal, state, and local governments use securities for decreasing the money
supply by selling the bonds it already owns. This relevantly decreases the level of cash flow
in the market and curbs inflation, while raising the value of home currency. In addition, the
federal governments can control the overall financial market by decreasing the money supply.
Increasing money supply:
In addition, the federal government starts to buy the overall bonds in the market to
increase the level of money supply in the market. This movement relevantly increases the
level of inflation and raises the money supply in the financial markets. Furthermore, the
government is also able to increase demand for goods and services, avoid job loss and
prevent the economy from slowing even further.
Role in interest rates:

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Governments by selling overall bonds can increase the level of interest rates, which
relevantly increases the level of banks that are required by the banks. The rising interest rates
would directly discourage borrowings and slow the overall economy.
Role in local economies:
The bonds issued by local economy such as municipal bonds can eventually allow the
local governments to support their state-wide projects. The increment in municipal bonds
relevantly raises the capability of the local governments to conduct expenditure, which raises
money supply in the market. Hence, local governments can control the financial market by
using bonds for conducing relevant expenditures.
Indicating how these decisions affect an investor:
The overall decisions of the government directly impact the return generation
capability of the investors. In addition, the selling of bonds conducted by government would
increase interest rates and force the investor to incur losses due to the reduction in inflation
rate, which negatively affects their investment in the financial market. On the other hand,
when government buys bonds then the overall supply of money increases in the financial
market, which raises the value of investment for the investors.

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References:
Finra-markets.morningstar.com. (2018). Finra-markets.morningstar.com. Retrieved 23
October 2018, from
http://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?
ticker=M14712876471237&symbol=
Fontana, A., & Scheicher, M. (2016). An analysis of euro area sovereign CDS and their
relation with government bonds. Journal of Banking & Finance, 62, 126-140.