I decided to write my Wall Street Journal Personal Financial Memo for chapter 13 on an article from November 29, 2012, titled Mongolia Binges on Bond Bonanza. This article written by Alex Frangos and Prabha Natarajan, is about the importance of the bond bonanza that Mongolia is facing. Bonds are the most common long-term debt investment. Like the book describes, these bonds are issued by the government of Mongolia in order to raise money to pay for roads, mining investment and electricity. One major difference that I found on this article and the textbook is the length of bonds. In the textbook, it said that bonds are 20 years or more in the future. Bonds have different purposes. For the investor, buying a bond is making a long-term loan of money to a company or governmental entity. In the case of this article, the loan is made to the government of Mongolia. For the issuer (government of Mongolia), a bond allows them to borrow money (issued in their local currency) needed for their operations or growth, paying interest for a long period of time. Investors like bonds because it helps to diversify a portfolio, giving a regular source of income. Like stocks, the investment in bonds has a level of risk. That being said, bonds are usually less risky than stocks. There is an inverse relationship between bonds and the level of risk. That being said, when interest rates go down, bond prices go up, and vice versa.
As described in the article, these bonds had a maturity of 5 and 10 years. These government bonds sold in Mongolia have yields that are comparable to developed countries, like Italy. In October, 2012, Italy sold 5 and 10 year bonds of $9 billion bonds at a coupon rate of 5.50%. For example, a 5 year bond of $500 million pays 4.125% annual yield, and a 10 year bond of $1 billion pays 5.125% annual yield. Government issued bonds have a credit risk (risk due to