A checklist before buying a bond

A bond looks simpler than a share, which is precisely why people buy one without reading the terms of the issue.

Which yield is displayed

To maturity or to the put date. For a bond with a put date the second is the only meaningful one — The put date: miss it and you are left holding a different bond, Yield to maturity: the only honest number a bond has.

Is there a put date, and whose

A put option is your right; a call option is the issuer's. The second means the bond gets redeemed when that suits them.

Is there amortisation

Returning principal in instalments changes both duration and comparability with other issues — Bond amortisation: when principal comes back in instalments.

What kind of coupon

Fixed, floating or inflation-linked. The three constructions behave differently when rates change — Inflation-protected bonds: how the principal is restated.

Credit quality

The issuer's rating and the premium over a government bond of the same maturity. A markedly larger premium at the same rating is a reason to investigate — Credit ratings: what they assess and why they are not a guarantee.

Is the issue subordinated

A subordinated bond's higher yield is explained by the ranking of claims rather than by the issuer's quality.

Duration

How far the price will react to a rate change, and whether the term fits inside your horizon — Duration: why long bonds fall harder.

Liquidity

Daily turnover and spread. In small issues an exit can take days — Portfolio liquidity risk: how long an exit would take.