Investors buy bonds for a variety of reasons. First, it is because it can yield enhancement, investing in bonds may improve their return than sitting on cash. When compared to other investments, such as saving accounts in banks, bonds pay a much higher rate of interest. So, instead of keeping money in a bank, people can invest in bonds and earn a good interest rate.
Second, investing in bonds, investors can earn stable interest income. Bonds deliver stable and predictable coupons as streams of income. Bonds also offer predictable repayment of principal at maturity.
On the other hand, investing in bond also is a good risk diversification tool. It is because bonds exhibit low correlation to other asset classes, hence the inclusion of bonds can bring relative stability to a portfolio. Besides, bonds often demonstrate comparable performance against equities over time, however with a lower volatility.
Moreover, bonds have capital gain potential. But the market price of a bond is affected by market interest rates, and perceived creditworthiness of the issue...
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