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.So you want to know why bonds fluctuate in value? Well, let's look at a few facts about bonds. A bond is a long term security that are issue by the federal government, corporations, municipalties or local governments, and then there's foreign bonds.

1) When the Federal Government issues a bond it is considered to be the safest of all the types of bond available because it would be unusual for the federal government to default on its bonds. But it is not total safe because if the interest rate rises, you would have a bond that wouldn't pay as much as one issued at a higher price.

2) Corporate bonds are bonds issued by corporations. Unlike Treasury bonds, if a corporation gets into trouble, it may not be able to pay its bonds interest or principle.Default risk, otherwise known as "credit risk" is common with corporate bonds. But a good thing about it is it causes corporate bonds to be issued at a higher interest rate.

3) Municiple bonds or "munis" are subject to default risks like corporate bonds are, but the good thing about municiple bonds is they are tax free from both federal and state taxes if the holder is a resident of the same state. So municiple bonds are issued at a considerably lower interest than corporate bonds with the same default risk.

4) Foreign bonds, whether it is government, corporation, or municiple bonds are subject to default and the devaluation if their currency drops in comparison to our dollar.

There are a number of ways that a bond can fluctuate in vaule. Say a bond was issued at 8% and had a coupon face value of $1000. The bond would pay an interest payment of $80 a month paid every six months which would equal to $480 every six months. If the bond was a "callable bond", the corporation would buy it back at a price calculated by using the time remaining on the bond, the coupon face value, and the interest rate it was issued at. Another way bond fluctuate is when they carry a "floating rate" which fluctuates with some market interest rate. If the interest rate drops so does your bond's interest rate. On the same token, this is a must for investors such as banks that their deposits are tied to a fluctuating rate as well. Treasury bonds are the safest bonds and the rest of them you must do the math and do your homework. Yes, there are risks, but you can become educated by looking up the company's historical numbers. You want to pick a company with a strong earnings potentialSo you want to know why bonds fluctuate in value. Well, let's look

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