An Introduction to Brady Bonds

Brady bonds are a type of bond that are issued from foreign governments to residents of the United States. This type of bond is named after former U.S. Treasury Secretary Nicholas Brady. Here are the basics of Brady bonds and how you can get involved with investing in them.

Brady Bonds

Brady bonds are bonds that are issued by developing countries in order to raise capital for projects. This type of bond is attractive because it is denominated in US dollars. This way, domestic investors do not have to do anything different than they would normally do to invest in this type of bond. 

When you invest in Brady bonds, you are going to invest a fixed amount of money known as the face value of the bond. Once you invest in the bond, the country that issued them is going to pay you a fixed amount of interest over the life of the bond. With Brady bonds, they can last anywhere from 10 to 30 years. At the end of the bond term, you are going to be able to get your initial investment back. 

Safety

One of the attractions of this type of bond is that they are considered to be a safe investment. Since the foreign government is issuing these bonds, you are going to have a level of safety attached to them. The government would have to completely go under in order for you to not be repaid. As long as you feel good about the chances of the developing country, you should have no issues with this type of investment.

Types

When it comes to Brady bonds, there are usually two types of bonds that you can choose from. You could purchase a par bond or a discount bond. Par bonds you buy for the face value, but the interest rate is a little below market rates. With discount bonds, you pay a little less than the face value and the interest rates are at the market rate. 

How to Invest

Sometimes, finding Brady bonds to invest in can be difficult. You need to locate an institutional investor that has this type of bond available. For example, there are many banks that will have Brady bonds available to purchase. If the bank already has the Brady bonds in their possession, you will usually be able to get them at a very reasonable price. If the bank has to go out and purchase the bonds first, they are most likely going to put a larger markup on them. 

If you cannot find an institution to work with, you could potentially work with a bond broker. Bond brokers are individuals that have access to the bond market and they will be willing to help you find the bonds that you need for a fee. In order to open an account with them, you are most likely going to need to invest at least $5000.

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