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30 years). The bondholder would then collect $10,000 in 30 years when the zero coupon bond matures.You may ask why is there a need for zero coupon bonds? The truth is that for some investors there is no need. It exists solely as an alternative to other types of bonds and to maximize the number of investment choices in the market. An investor interested in investing in the long bond (perhaps due to its safe standing) now has a wide variety of securities based on the long bond to choose from in addition to the traditional long bond investment. It’s all about giving investors as many choices as possible.

Trading Bonds

Most bonds are marketable assets, meaning that they can be traded for cash at any given time in the bond market. For example, the holder of a long bond may at her discretion sell the bond in the market at the going rate. Without the bond market the bondholder would have to keep the bond until the maturity date is reached. Most bonds are also liquid assets, meaning that there is always enough demand for them for a seller to turn them into cash. T-bills, for example, are one of the most liquid bonds available today with millions of them changing hands everyday.Many bonds can be traded in exchanges (known as secondary markets) such as NYSE and AMEX. Such bonds are sometimes referred to as listed bonds.

Bonds are perhaps the primary indicators of a country’s economic status as their prices are highly sensitive to economic news and forecasts. Bond traders try to use the bond price volatility by favorably positioning themselves to maximize their profit potential, accumulating bonds when they predict bond price increases and selling them when the forecasts call for price drops. …