Benchmark Bond

  

Categories: Bonds, Metrics, Econ

In general, a benchmark is a way to judge the performance of an investment (See: Benchmark). The basic idea: you can't tell how well something performed until you compare it to the general market, or to some other relevant marker of performance.

A benchmark bond applies specifically to the bond market. In the stock market, common benchmarks include stock indices, like the S&P 500. For bonds, a common benchmark is the 10-year U.S. Treasury. This provides a baseline for how your bond investment performed.

Once you identify an appropriate benchmark, you can ask relevant questions about the performance of your investment.

Things like:

Did it do better or worse than the benchmark? Did you get enough return to take extra risk? Did you waste your life going into finance, when you don't care at all about bond speculation and you spend all my time thinking about that screenplay you started in college? Actually, we're not sure how much a benchmark would help this last one; maybe if your performance is good enough vs. the benchmark, you'll forget about Hollywood and get back to investing.

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