How does one start to invest in the bond market?

The bond market must be regarded as a big boy's playground. This is because it is not as volatile as the sharemarket and it is necessary to buy and sell large amounts of bond stock (thinking in terms of $100,000 units here) to make decent money. So broker commission rates start to assume more importance, and if you are trading even $25,000 worth of bonds this is regarded as 'small'. You will pay punitive commission rates in comparison with say a trading bank which may be buying bonds in million dollar blocks.

There are two ways to deal with this.

1. You could go to a trading bank directly and take out a slice of the multi-million dollar bond block that they have bought. This is the so-called classical fixed interest investment. The advantage of this is that you don't pay any up front commission as such, and it is the bank that takes the market risk on your capital. Bank fixed interest deposits normally guarantee that all of your capital gets paid back. Rest assured however the you do not get something for nothing. You will find that the fixed interest rate that the bank is offering you has been reduced from the parent 'million-dollar block bond rate' to cover their market risks.

2. You can join a managed fund that invests in bonds. That way your money is combined with others so that the fund has a critical mass. This is not the place for short-term money however. Market volatility means that even what is apparently a fixed interest investment can lose money. Longer term, however, such an investment should outperform bank fixed interest deposits.