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Encyclopedia > Bond (finance)
Finance

Financial Markets
Bond market
Stock (Equities) Market
Forex market
Derivatives market
Commodity market
Spot (cash) Market
OTC market
Real Estate market
Look up bond in Wiktionary, the free dictionary. ... This article does not cite any references or sources. ... This is a file from the Wikimedia Commons, a repository of free content hosted by the Wikimedia Foundation. ... This article does not cite any references or sources. ... The bond market, also known as the debit, credit, or fixed income market, is a financial market where participants buy and sell debt securities usually in the form of bonds. ... A stock market is a market for the trading of company stock, and derivatives of same; both of these are securities listed on a stock exchange as well as those only traded privately. ... In finance, the exchange rate between two currencies specifies how much one currency is worth in terms of the other. ... The derivatives markets are the financial markets for derivatives. ... Chicago Board of Trade Futures market Commodity markets are markets where raw or primary products are exchanged. ... Template:The Spot Market The Spot Market or Cash Marketis a commodities or securities market in which goods are sold for cash and delivered immediately. ... Over-the-counter (OTC) trading is to trade financial instruments such as stocks, bonds, commodities or derivatives directly between two parties. ... Real estate is a legal term that encompasses land along with anything permanently affixed to the land, such as buildings. ...

Market Participants
Investors
Speculators
Institutional Investors
There are two basic financial market participant catagories, Investor vs. ... Investment is a term with several closely related meanings in finance and economics. ... Speculation is the buying, holding, and selling of stocks, commodities, futures, currencies, collectibles, real estate, or any valuable thing to profit from fluctuations in its price as opposed to buying it for use or for income - dividends, rent etc. ... An institutional investor is an investor who is an institution like a bank, insurance fund, retirement fund, or mutual fund manager. ...

Corporate finance
Structured finance
Capital budgeting
Financial risk management
Mergers and Acquisitions
Accounting
Financial Statements
Auditing
Credit rating agency
Domestic credit to private sector in 2005 Corporate finance is an area of finance dealing with the financial decisions corporations make and the tools and analysis used to make these decisions. ... Structured finance describes any non-standard way of raising money. ... The process of determining which potential long-term projects are worth undertaking, by comparing their expected discounted cash flows with their internal rates of return. ... Financial risk management is the practice of creating economic value in a firm by using financial instruments to manage exposure to risk, particularly credit and market risk. ... The phrase mergers and acquisitions (abbreviated M&A) refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling and combining of different companies that can aid, finance, or help a growing company in a given industry grow rapidly without having to create another business... It has been suggested that Accounting scholarship be merged into this article or section. ... Historical financial statement Financial statements (or financial reports) are formal records of a business financial activities. ... Basic definition Audit is the examination of records and reports of a company, in order to check that what is provided is relevant and accurate. ... A credit rating agency (CRA) is a company that assigns credit ratings for issuers of certain types of debt obligations. ...

Personal finance
Credit and Debt
Employment contract
Retirement
Financial planning
Personal finance is the application of the principles of finance to the monetary decisions of an individual or family unit. ... Credit as a financial term, used in such terms as credit card, refers to the granting of a loan and the creation of debt. ... This article does not cite any references or sources. ... An employment contract is an agreement entered into between an employer and an employee at the commencement of the period of employment and stating the exact nature of their business relationship, specifically what compensation the employee will receive in exchange for specific work performed. ... Retirement is the point where a person stops employment. ... A Financial Planner or Personal Financial Planner is a practicing professional who helps people to deal with various personal financial issues through proper planning, which includes but not limited to these major areas: tertiary education planning, retirement planning, investment planning, risk management and insurance planning, tax planning, estate planning and...

Public finance
Tax
Public finance (government finance) is the field of economics that deals with budgeting the revenues and expenditures of a public sector entity, usually government. ... Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank   Money supply Fiscal policy Spending   Deficit   Debt Trade policy Tariff   Trade agreement Finance Financial market Financial market participants Corporate   Personal Public   Banking   Regulation        A tax is a financial charge or other levy imposed on...

Banks and Banking
Central Bank
List of banks
Deposits
Loan
For other uses, see Bank (disambiguation). ... This is a list of banks throughout the world. ... Bank deposits are the large part of the money supply. They come in different types depending on withdrawal restrictions. ... A loan is a type of debt. ...

Financial regulation
Finance designations
Accounting scandals
Financial supervision is government supervision of financial institutions by regulators. ... There are a variety of Finance designations or Accreditations that can be earned, and awarded to those in the finance industry. ... Accounting scandals, or corporate accounting scandals are political and business scandals which arise with the disclosure of misdeeds by trusted executives of large public corporations. ...

History of finance
Stock market bubble
Recession
Stock market crash
A stock market bubble is a type of economic bubble taking place in stock markets when price of stocks rise and become overvalued by any measure of stock valuation. ... A recession is traditionally defined in macroeconomics as a decline in a countrys real Gross Domestic Product (GDP) for two or more successive quarters of a year (equivalently, two consecutive quarters of negative real economic growth). ... Black Monday (1987) on the Dow Jones Industrial Average A stock market crash is a sudden dramatic decline of stock prices across a significant cross-section of a stock market. ...

v d

In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and is obliged to repay the principal and interest (the coupon) at a later date, termed maturity. Other stipulations may also be attached to the bond issue, such as the obligation for the issuer to provide certain information to the bond holder, or limitations on the behavior of the issuer. Bonds are generally issued for a fixed term (the maturity) longer than ten years. U.S Treasury securities issue debt with life of ten years or more, which is a bond. New debt between one year and ten years is a "note", and new debt less than a year is a "bill". This article does not cite any references or sources. ... This article does not cite any references or sources. ... For security (collateral), the legal right given to a creditor by a borrower, see security interest A security is a fungible, negotiable interest representing financial value. ... In finance, coupons are attached to bonds, either physically, as with old bonds (with a stapler), or electronically. ... Maturity refers to the final payment date of a loan or other financial instrument, after which point no further interest or principal need be paid. ...


A bond is simply a loan, but in the form of a security, although terminology used is rather different. The issuer is equivalent to the borrower, the bond holder to the lender, and the coupon to the interest. Bonds enable the issuer to finance long-term investments with external funds. Certificates of deposit (CDs) or commercial paper are considered money market instruments. A loan is a type of debt. ... Invest redirects here. ... A certificate of deposit or CD is a time deposit, a financial product commonly offered to consumers by banks, thrift institutions, and credit unions. ... Commercial paper is a money market security issued by large banks and corporations. ... This article is about short-term financing. ...


In some nations, both bonds and notes are used irrespective of the maturity. Market participants normally use bonds for large issues offered to a wide public, and notes for smaller issues originally sold to a limited number of investors. There are no clear demarcations. There are also "bills" which usually denote fixed income securities with three years or less, from the issue date, to maturity. Bonds have the highest risk, notes are the second highest risk, and bills have the least risk. This is due to a statistical measure called duration, where lower durations have less risk, and are associated with shorter term obligations. In economics and finance, duration is the weighted average maturity of a bonds cash flows or of any series of linked cash flows. ...


Bonds and stocks are both securities, but the difference is that stock holders own a part of the issuing company (have an equity stake), whereas bond holders are in essence lenders to the issuer. Also bonds usually have a defined term, or maturity, after which the bond is redeemed whereas stocks may be outstanding indefinitely. An exception is a consol bond, which is a perpetuity (i.e. bond with no maturity). This article does not cite any references or sources. ... For security (collateral), the legal right given to a creditor by a borrower, see security interest A security is a fungible, negotiable interest representing financial value. ... This article does not cite any references or sources. ... Consols is a British government bond (gilt), dating originally from the 18th century. ... A perpetuity is an annuity in which the periodic payments begin on a fixed date and continue indefinitely. ...

Contents

Issuers

The range of issuers of bonds is very large. Almost any organization could issue bonds, but the underwriting and legal costs can be prohibitive. Regulations to issue bonds are very strict. Issuers are often classified as follows:

The European Investment Bank (the Banque Européenne dInvestissement) is the European Unions financing institution and was established under the Treaty of Rome (1957) to provide loan finance for capital investment furthering European Union policy objectives, in particular regional development, Trans-European Networks of transport, telecommunications and energy... The Asian Development Bank (ADB) is a regional development bank established in 1966 to promote economic and social development in Asian and Pacific countries through loans and technical assistance. ... Government debt (public debt, national debt) is money owed by government, at any level (central government, federal government, national government, municipal government, local government, regional government). ... A sovereign bond is a bond issued by a national government as opposed to a municipal bond which is issued by a subdivision of a national government. ... In the United States, a municipal bond or muni is a bond issued by a state, city or other local government, or their agencies. ... The government sponsored enterprises (GSEs) are a group of financial services corporations created by the United States Congress. ... The Federal Home Loan Mortgage Corporation (FHLMC) NYSE: FRE, commonly known as Freddie Mac, is a government sponsored enterprise (GSE) sponsored by the United States Government. ... The Federal National Mortgage Association (FNMA) (NYSE: FNM), commonly known as Fannie Mae, is a government sponsored enterprise (GSE) sponsored by the United States government. ... The Federal Home Loan Banks provide stable, on-demand, low-cost funding to American financial institutions for home mortgage loans, small business, rural, agricultural, and economic development lending. ... A corporate bond is a bond issued by a corporation. ... An asset-backed security is a type of bond or note that is based on pools of assets, or collateralized by the cash flows from a specified pool of underlying assets. ...

Issuing bonds

Bonds are issued by public authorities, credit institutions, companies and supranational institutions in the primary markets. The most common process of issuing bonds is through underwriting. In underwriting, one or more securities firms or banks, forming a syndicate, buy an entire issue of bonds from an issuer and re-sell them to investors. Government bonds are typically auctioned. The primary is that part of the capital markets that deals with the issuance of new securities. ...


Features of bonds

The most important features of a bond are:

  • nominal, principal or face amount—the amount over which the issuer pays interest, and which has to be repaid at the end.
  • issue price—the price at which investors buy the bonds when they are first issued, typically $1,000.00. The net proceeds that the issuer receives are calculated as the issue price, less issuance fees, times the nominal amount.
  • maturity date—the date on which the issuer has to repay the nominal amount. As long as all payments have been made, the issuer has no more obligations to the bond holders after the maturity date. The length of time until the maturity date is often referred to as the term or maturity of a bond. The maturity can be any length of time, although debt securities with a term of less than one year are generally designated money market instruments rather than bonds. Most bonds have a term of up to thirty years. Some bonds have been issued with maturities of up to one hundred years, and some even do not mature at all. In early 2005, a market developed in euros for bonds with a maturity of fifty years. In the market for U.S. Treasury securities, there are three groups of bond maturities:
    • short term (bills): maturities up to one year;
    • medium term (notes): maturities between one and ten years;
    • long term (bonds): maturities greater than ten years.
  • coupon—the interest rate that the issuer pays to the bond holders. Usually this rate is fixed throughout the life of the bond. It can also vary with a money market index, such as LIBOR, or it can be even more exotic. The name coupon originates from the fact that in the past, physical bonds were issued which had coupons attached to them. On coupon dates the bond holder would give the coupon to a bank in exchange for the interest payment.
  • coupon dates—the dates on which the issuer pays the coupon to the bond holders. In the U.S., most bonds are semi-annual, which means that they pay a coupon every six months. In Europe, most bonds are annual and pay only one coupon a year.
  • indenture or covenants—a document specifying the rights of bond holders. In the U.S., federal and state securities and commercial laws apply to the enforcement of those documents, which are construed by courts as contracts. The terms may be changed only with great difficulty while the bonds are outstanding, with amendments to the governing document generally requiring approval by a majority (or super-majority) vote of the bond holders.
  • Optionality: a bond may contain an embedded option; that is, it grants option like features to the buyer or issuer:
    • callability—Some bonds give the issuer the right to repay the bond before the maturity date on the call dates; see call option. These bonds are referred to as callable bonds. Most callable bonds allow the issuer to repay the bond at par. With some bonds, the issuer has to pay a premium, the so called call premium. This is mainly the case for high-yield bonds. These have very strict covenants, restricting the issuer in its operations. To be free from these covenants, the issuer can repay the bonds early, but only at a high cost.
    • puttability—Some bonds give the bond holder the right to force the issuer to repay the bond before the maturity date on the put dates; see put option.
    • call dates and put dates—the dates on which callable and puttable bonds can be redeemed early. There are four main categories.
      • A Bermudan callable has several call dates, usually coinciding with coupon dates.
      • A European callable has only one call date. This is a special case of a Bermudan callable.
      • An American callable can be called at any time until the maturity date.
      • A death put is an optional redemption feature on a debt instrument allowing the beneficiary of the estate of the deceased to put (sell) the bond (back to the issuer) in the event of the beneficiary's death or legal incapacitation. Also known as a "survivor's option".
  • sinking fund provision of the corporate bond indenture requires a certain portion of the issue to be retired periodically. The entire bond issue can be liquidated by the maturity date. If that is not the case, then the remainder is called balloon maturity. Issuers may either pay to trustees, which in turn call randomly selected bonds in the issue, or, alternatively, purchase bonds in open market, then return them to trustees.
  • convertible bond lets a bondholder exchange a bond to a number of shares of the issuer's common stock.
  • exchangeable bond allows for exchange to shares of a corporation other than the issuer.

Year 2005 (MMV) was a common year starting on Saturday (link displays full calendar) of the Gregorian calendar. ... The Greek name for the rainy, stormy southeast wind. ... In finance, coupons are attached to bonds, either physically, as with old bonds (with a stapler), or electronically. ... LIBOR stands for the London Interbank Offered Rate and is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the London wholesale (or interbank) money market. ... In finance options are types of derivative contracts, including call options and put options, where the future payoffs to the buyer and seller of the contract are determined by the price of another security, such as a common stock. ... This article does not cite any references or sources. ... A callable bond (redeemable bond) is a bond that can be redeemed by the issuer prior to its maturity. ... Par value has several meanings depending on the context, whether used in the equities market, or in the bond markets, and partially also dependent on where in the world the par value term is used. ... A put option (sometimes simply called a put) is a financial contract between two parties, the buyer and the writer of the option. ... In finance, the style or family of an option is a general term denoting the class into which the option falls, usually defined by the dates on which the option may be exercised. ... A convertible bond, or convertible debenture, is a type of bond that can be converted into shares of stock in the issuing company, usually at some pre-announced ratio. ... In finance, an exchangeable bond (or XB) is a straight bond with an imbedded option to exchange the bond for the stock of a company other than the issuer (usually a subsidiary) at some future date and under prescribed conditions. ...

Types of bond

  • Fixed rate bonds have a coupon that remains constant throughout the life of the bond.
  • Floating rate notes (FRN's) have a coupon that is linked to a money market index, such as LIBOR or Euribor, for example three months USD LIBOR + 0.20%. The coupon is then reset periodically, normally every three months.
  • High yield bonds are bonds that are rated below investment grade by the credit rating agencies. As these bonds are relatively risky, investors expect to earn a higher yield. These bonds are also called junk bonds.
  • Zero coupon bonds do not pay any interest. They trade at a substantial discount from par value. The bond holder receives the full principal amount as well as value that has accrued on the redemption date. An example of zero coupon bonds are Series E savings bonds issued by the U.S. government. Zero coupon bonds may be created from fixed rate bonds by financial institutions by "stripping off" the coupons. In other words, the coupons are separated from the final principal payment of the bond and traded independently.
  • Other indexed bonds, for example equity linked notes and bonds indexed on a business indicator (income, added value) or on a country's GDP.
  • Subordinated bonds are those that have a lower priority than other bonds of the issuer in case of liquidation. In case of bankruptcy, there is a hierarchy of creditors. First the liquidator is paid, then government taxes, etc. The first bond holders in line to be paid are those holding what is called senior bonds. After they have been paid, the subordinated bond holders are paid. As a result, the risk is higher. Therefore, subordinated bonds usually have a lower credit rating than senior bonds. The main examples of subordinated bonds can be found in bonds issued by banks, and asset-backed securities. The latter are often issued in tranches. The senior tranches get paid back first, the subordinated tranches later.
  • Perpetual bonds are also often called perpetuities. They have no maturity date. The most famous of these are the UK Consols, which are also known as Treasury Annuities or Undated Treasuries. Some of these were issued back in 1888 and still trade today. Some ultra long-term bonds (sometimes a bond can last centuries: West Shore Railroad issued a bond which matures in 2361 (i.e. 24th century)) are sometimes viewed as perpetuities from a financial point of view, with the current value of principal near zero.
  • Bearer bond is an official certificate issued without a named holder. In other words, the person who has the paper certificate can claim the value of the bond. Often they are registered by a number to prevent counterfeiting, but may be traded like cash. Bearer bonds are very risky because they can be lost or stolen. Especially after federal income tax began in the United States, bearer bonds were seen as an opportunity to conceal income or assets.[1] U.S. corporations stopped issuing bearer bonds in the 1960s, the U.S. Treasury stopped in 1982, and state and local tax-exempt bearer bonds were prohibited in 1983.[2]
  • Registered bond is a bond whose ownership (and any subsequent purchaser) is recorded by the issuer, or by a transfer agent. It is the alternative to a Bearer bond. Interest payments, and the principal upon maturity, are sent to the registered owner.
  • Municipal bond is a bond issued by a state, U.S. Territory, city, local government, or their agencies. Interest income received by holders of municipal bonds is often exempt from the federal income tax and from the income tax of the state in which they are issued, although municipal bonds issued for certain purposes may not be tax exempt.
  • Book-entry bond is a bond that does not have a paper certificate. As physically processing paper bonds and interest coupons became more expensive, issuers (and banks that used to collect coupon interest for depositors) have tried to discourage their use. Some book-entry bond issues do not offer the option of a paper certificate, even to investors who prefer them.[3]
  • Lottery bond is a bond issued by a state, usually a European state. Interest is paid like a traditional fixed rate bond, but the issuer will redeem randomly selected individual bonds within the issue according to a schedule. Some of these redemptions will be for a higher value than the face value of the bond.
  • War bond is a bond issued by a country to fund a war.

In finance, a Fixed rate bond is a security issued by a government or a business corporation that pays a fixed amount of interest (coupon rate) on the face value (principal/par value) of the bond periodically (often every six months or annually) to the owner until a date certain... Floating rate notes (FRNs) are bonds that have a variable coupon, equal to a money market reference rate, like LIBOR or federal funds rate, plus a spread. ... LIBOR stands for the London Interbank Offered Rate and is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the London wholesale (or interbank) money market. ... Euribor-12m value between years 2001 and 2006 Euribor (Euro Interbank Offered Rate) is a daily reference rate based on the averaged interest rates at which banks offer to lend unsecured funds to other banks in the euro wholesale money market (or interbank market). ... High yield debt (non-investment grade or junk bond) is a business term referring to a corporate debt instrument, usually a bond, that has a higher yield (compared to investment grade debt) because of a high perceived credit risk (default risk). ... A credit rating agency (CRA) is a company that assigns credit ratings for issuers of certain types of debt obligations. ... High yield debt (non-investment grade or junk bond) is a business term referring to a corporate debt instrument, usually a bond, that has a higher yield (compared to investment grade debt) because of a high perceived credit risk (default risk). ... Zero coupon bonds are bonds which do not pay periodic coupons, or so-called interest payments. ... Par value has several meanings depending on the context, whether used in the equities market, or in the bond markets, and partially also dependent on where in the world the par value term is used. ... Zero coupon bonds are bonds which do not pay periodic coupons, or so-called interest payments. ... Inflation-indexed bonds (also known as linkers) are bonds whose principal are indexed to inflation, cutting out inflation risk. ... The agencies responsible for the government of the United Kingdom consist of a number of ministerial departments (usually headed by a Secretary of State) and non-ministerial departments headed by senior civil servants. ... Gilts are bonds issued by the UK Government. ... This article does not cite any references or sources. ... Treasury Securities are bonds issued by the U.S. Treasury. ... An asset-backed security is a type of bond or note that is based on pools of assets, or collateralized by the cash flows from a specified pool of underlying assets. ... A mortgage-backed security (MBS) is an asset-backed security whose cash flows are backed by the principal and interest payments of a set of mortgage loans. ... A Collateralized Mortgage Obligation (CMO) is a type of Mortgage Backed Security, which has been divided up into tranches. ... Collateralized debt obligations (CDOs) are a type of asset-backed security or structured finance product. ... A Subordinated bond is a bond that has a lower priority than other bonds of the issuer in case of liquidation during bankruptcy. ... Liquidation, or winding up, refers to a business whose assets are converted to money in order to pay off debt. ... In law, a liquidator is the officer appointed when a company goes into winding-up or liquidation who has responsibility for collecting in all of the assets of the company and settling all claims against the company before putting the company into dissolution. ... The word tranche is French for slice. ... A bond with no maturity date. ... A perpetuity is an annuity in which the periodic payments begin on a fixed date and continue indefinitely. ... For the toll-free telephone number see Toll-free telephone number Year 1888 (MDCCCLXXXVIII) was a leap year starting on Sunday (click on link for calendar) of the Gregorian calendar (or a leap year starting on Friday of the 12-day slower Julian calendar). ... A bearer bond or bearer security is a certificate that represents a bond obligation of, or stock in, a corporation or other intangible property. ... A bearer bond or bearer security is a certificate that represents a bond obligation of, or stock in, a corporation or other intangible property. ... In the United States, a municipal bond or muni is a bond issued by a state, city or other local government, or their agencies. ... Tax advantage refers to the economic bonus which applies to certain accounts or investments that are, by statute, tax-reduced, tax-deferred, or tax-free. ... Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank   Money supply Fiscal policy Spending   Deficit   Debt Trade policy Tariff   Trade agreement Finance Financial market Financial market participants Corporate   Personal Public   Banking   Regulation        An income tax is a tax levied on the financial income... This article or section does not cite its references or sources. ... An American War Bonds poster from 1942 War bonds are a type of savings bond used by combatant nations to help fund a war effort. ...

Bonds issued by foreign entities

Some companies, banks, governments, and other sovereign entities may decide to issue bonds in foreign currencies as it may appear to be more stable and predictable than their domestic currency. Issuing bonds denominated in foreign curriencies also gives issuers the ability to access investment capital available in foreign markets. The proceeds from the issuance of these bonds can be used by companies to break into foreign markets, or can be converted into the issuing company's local currency to be used on existing operations. Foreign issuer bonds can also be used to hedge foreign exchange rate risk. Some of these bonds are called by their nicknames, such as the "samurai bond".

  • Eurodollar bond, a U.S. dollar-denominated bond issued by a non-U.S. entity outside the U.S.[citation needed]
  • Kangaroo bond,an Australian dollar-denominated bond issued by a non-Australian entity in the Australian market
  • Maple bond, a Canadian Dollar-denominated bond issued by a non-Canadian entity in the Canadian market
  • Samurai bond, a Japanese Yen-denominated bond issued by a non-Japanese entity in the Japanese market
  • Yankee bond, a US Dollar-denominated bond issued by a non-US entity in the US market
  • Shogun bond, a non-yen-denominated bond issued in Japan by a non-Japanese institution or government
  • Bulldog bond, a pound sterling-denominated bond issued in London by a foreign institution or government
  • Ninja loan, a Japanese yen syndicated loan by a foreign borrower [1]
  • Formosa bond, a non-New Taiwan Dollar-denominated bond issued by a non-Taiwan entity in the Taiwan market[4]
  • Panda bond, a Chinese renminbi-denominated bond issued by a non-China entity in the People's Republic of China market[5]
  • State of Israel bond, a bond demoninated in multiple currencies issued by the State of Israel through the Development Corporation of Israel.

This article is being considered for deletion in accordance with Wikipedias deletion policy. ... A Panda bond is a Chinese renminbi-denominated bond from a non-Chinese issuer, sold in the Peoples Republic of China. ... State of Israel Bonds are debt securities issued by the Government of Israel. ...

Trading and valuing bonds

See also: Bond valuation

The interest rate that the issuer of a bond must pay is influenced by a variety of factors, such as current market interest rates, the length of the term and the credit worthiness of the issuer. Bond valuation is the process of determining the fair price of a bond. ...


These factors are likely to change over time, so the market value of a bond can vary after it is issued. Because of these differences in market value, bonds are priced in terms of percentage of par value. Bonds are not necessarily issued at par (100% of face value, corresponding to a price of 100), but all bond prices converge to par when they reach maturity. At other times, prices can either rise (bond is priced at greater than 100), which is called trading at a premium, or fall (bond is priced at less than 100), which is called trading at a discount. Most government bonds are denominated in units of $1000, if in the United States, or in units of £100, if in the United Kingdom. Hence, a deep discount US bond, selling at a price of 75.26, indicates a selling price of $752.60 per bond sold. (Often, bond prices are quoted in points and thirty-seconds of a point, rather than in decimal form.) Some short-term bonds, such as the U.S. T-Bill, are always issued at a discount, and pay par amount at maturity rather than paying coupons. This is called a discount bond.


The market price of a bond is the present value of all future interest and principal payments of the bond discounted at the bond's yield, or rate of return. The yield represents the current market interest rate for bonds with similar characteristics. The yield and price of a bond are inversely related so that when market interest rates rise, bond prices generally fall and vice versa. The present value of a single or multiple future payments (known as cash flows) is the nominal amounts of money to change hands at some future date, discounted to account for the time value of money, and other factors such as investment risk. ... Yield may mean: In economics, yield is a measure of the amount of income an investment generates over time (related to return on investment). ... This article or section is in need of attention from an expert on the subject. ...


The market price of a bond may include the accrued interest since the last coupon date. (Some bond markets include accrued interest in the trading price and others add it on explicitly after trading.) The price including accrued interest is known as the "flat" or "dirty price". (See also Accrual bond.) The price excluding accrued interest is sometimes known as the Clean price. Market price is an economic concept with commonplace familiarity; it is the price that a good or service is offered at, or will fetch, in the marketplace; it is of interest mainly in the study of microeconomics. ... In finance, accrued interest is the interest that has accumulated since the principal investment, or since the previous interest payment if there has been one already. ... Dirty Price A bond price that includes accrued interest. ... An accrual bond is a fixed-interest bond that is issued at its face value and repaid at the end of the maturity period together with the accrued interest. ... The price quoted for a bond excluding accrued interest. ...


The interest rate adjusted for the current price of the bond is called the "current yield" or "earnings yield" (this is the nominal yield multiplied by the par value and divided by the price).


Taking into account the expected capital gain or loss (the difference between the current price and the redemption value) gives the "redemption yield": roughly the current yield plus the capital gain (negative for loss) per year until redemption. In finance, a capital gain is profit that results from the appreciation of a capital asset over its purchase price. ... To meet Wikipedias quality standards, this article may require cleanup. ... Yield may mean: In economics, yield is a measure of the amount of income an investment generates over time (related to return on investment). ...


The relationship between yield and maturity for otherwise identical bonds is called a yield curve. The US dollar yield curve as of 9 February 2005. ...


Bonds markets, unlike stock or share markets, often do not have a centralized exchange or trading system. Rather, in most developed bond markets such as the U.S., Japan and western Europe, bonds trade in decentralized, dealer-based over-the-counter markets. In such a market, market liquidity is provided by dealers and other market participants committing risk capital to trading activity. In the bond market, when an investor buys or sells a bond, the counterparty to the trade is almost always a bank or securities firm acting as a dealer. In some cases, when a dealer buys a bond from an investor, the dealer carries the bond "in inventory." The dealer's position is then subject to risks of price fluctuation. In other cases, the dealer immediately resells the bond to another investor. The bond market, also known as the debit, credit, or fixed income market, is a financial market where participants buy and sell debt securities usually in the form of bonds. ... Over-the-counter (OTC) trading is to trade financial instruments such as stocks, bonds, commodities or derivatives directly between two parties. ... Market liquidity is a business, economics or investment term that refers to an assets ability to be easily converted through an act of buying or selling without causing a significant movement in the price and with minimum loss of value. ...


Bond markets also differ from stock markets in that investors generally do not pay brokerage commissions to dealers with whom they buy or sell bonds. Rather, dealers earn revenue for trading with their investor customers by means of the spread, or difference, between the price at which the dealer buys a bond from one investor--the "bid" price--and the price at which he or she sells the same bond to another investor--the "ask" or "offer" price. The bid/offer spread represents the total transaction cost associated with transferring a bond from one investor to another. The bid/offer spread is the difference between the buying (bid) and selling (offer) price of the same stock or currency transaction. ...


Investing in bonds

Bonds are bought and traded mostly by institutions like pension funds, insurance companies and banks. Most individuals who want to own bonds do so through bond funds. Still, in the U.S., nearly ten percent of all bonds outstanding are held directly by households. A bond fund is a fund that invests in bonds. ...


As a rule, bond markets rise (while yields fall) when stock markets fall. Thus bonds are generally viewed as safer investments than stocks, but this perception is only partially correct. Bonds do suffer from less day-to-day volatility than stocks, and bonds' interest payments are higher than dividend payments that the same company would generally choose to pay to its stockholders. Bonds are liquid — it is fairly easy to sell one's bond investments, though not nearly as easy as it is to sell stocks — and the certainty of a fixed interest payment twice per year is attractive. Bondholders also enjoy a measure of legal protection: under the law of most countries, if a company goes bankrupt, its bondholders will often receive some money back (the recovery amount), whereas the company's stock often ends up valueless. However, bonds can be risky: This article does not cite any references or sources. ... It has been suggested that ex-dividend date be merged into this article or section. ... Notice of closure stuck on the door of a computer store the day after its parent company, Granville Technology Group Ltd, declared bankruptcy (strictly, put into administration—see text) in the United Kingdom. ... When a bond or other financial derivative defaults, the recovery is the amount that the underlying company can afford to pay, either with the cash originally designated for the coupon or maturity payment (if they defaulted simply because they did not have enough cash), or by selling off assets or...

  • Fixed rate bonds are subject to interest rate risk, meaning their market price will decrease in value when the generally prevailing interest rate rises. Since the payments are fixed, a decrease in the market price of the bond means an increase in its yield. When the market's interest rates rise, then the market price for bonds will fall, reflecting investors' improved ability to get a good interest rate for their money elsewhere — perhaps by purchasing a newly issued bond that already features the newly higher interest rate. This drop in the bond's market price does not affect the interest payments to the bondholder at all, so long-term investors need not worry about price swings in their bonds.

However, price changes in a bond immediately affect mutual funds that hold these bonds. Many institutional investors have to "mark to market" their trading books at the end of every day. If the value of the bonds held in a trading portfolio has fallen over the day, the "mark to market" value of the portfolio may also have fallen. This can be damaging for professional investors such as banks, insurance companies, pension funds and asset managers. If there is any chance a holder of individual bonds may need to sell his bonds and "cash out" for some reason, interest rate risk could become a real problem. (Conversely, bonds' market prices would increase if the prevailing interest rate were to drop, as it did from 2001 through 2003.) One way to quantify the interest rate risk on a bond is in terms of its duration. Efforts to control this risk are called immunization or hedging. Interest rate risk is the risk that the relative value of a security, especially a bond, will worsen due to an interest rate increase. ... Market price is an economic concept with commonplace familiarity; it is the price that a good or service is offered at, or will fetch, in the marketplace; it is of interest mainly in the study of microeconomics. ... A mutual fund is a form of collective investments that pools money from many investors and invests their money in stocks, bonds, short-term money market instruments, and/or other securities. ... In economics, mark to market is the act of assigning a value to a position held in a tradeable financial instrument based on the current market price for that instrument. ... In finance, a portfolio is a collection of investments held by an institution or a private individual. ... In economics and finance, bond duration is the weighted average maturity of a bond or series of cash flows received. ... In finance, interest rate immunization is a strategy that insures that a change in interest rates will not affect the value of a portfolio. ... It has been suggested that this article or section be merged into Hedge (finance). ...

  • Bond prices can become volatile if one of the credit rating agencies like Standard & Poor's or Moody's upgrades or downgrades the credit rating of the issuer. A downgrade can cause the market price of the bond to fall. As with interest rate risk, this risk does not affect the bond's interest payments, but puts at risk the market price, which affects mutual funds holding these bonds, and holders of individual bonds who may have to sell them.
  • A company's bondholders may lose much or all their money if the company goes bankrupt. Under the laws of many countries (including the United States), bondholders are in line to receive the proceeds of the sale of the assets of a liquidated company ahead of some other creditors. Bank lenders, deposit holders (in the case of a deposit taking institution such as a bank) and trade creditors may take precedence.

There is no guarantee of how much money will remain to repay bondholders. As an example, after an accounting scandal and a Chapter 11 bankruptcy at the giant telecommunications company Worldcom, in 2004 its bondholders ended up being paid 35.7 cents on the dollar. In a bankruptcy involving reorganization or recapitalization, as opposed to liquidation, bondholders may end up having the value of their bonds reduced, often through an exchange for a smaller number of newly issued bonds. A credit rating agency (CRA) is a company that assigns credit ratings for issuers of certain types of debt obligations. ... Publications Standard & Poors publishes a weekly (48 times a year) stock market analysis newsletter called The Outlook, which is issued both in print and online to subscribers. ... Moodys Corporation (NYSE: MCO) is the holding company for Moodys Investors Service which performs financial research and analysis on commercial and government entities. ... Bankruptcy is a legally declared inability or impairment of ability of an individual or organization to pay their creditors. ... Chapter 11 of the Bankruptcy Code governs the process of reorganization under the bankruptcy laws of the United States. ... For a time, WorldCom (WCOM) was the United States second largest long distance phone company (AT&T was the largest). ... Year 2004 (MMIV) was a leap year starting on Thursday of the Gregorian calendar. ...

  • Some bonds are callable, meaning that even though the company has agreed to make payments plus interest towards the debt for a certain period of time, the company can choose to pay off the bond early. This creates reinvestment risk, meaning the investor is forced to find a new place for his money, and the investor might not be able to find as good a deal, especially because this usually happens when interest rates are falling.

Reinvestment risk is one of the main genres of financial risk. ...

Bond indices

See also: Bond market index

A number of bond indices exist for the purposes of managing portfolios and measuring performance, similar to the S&P 500 or Russell Indexes for stocks. The most common American benchmarks are the Lehman Aggregate, Citigroup BIG and Merrill Lynch Domestic Master. Most indices are parts of families of broader indices that can be used to measure global bond portfolios, or may be further subdivided by maturity and/or sector for managing specialized portfolios. A bond market index is a listing of bonds or fixed income instruments and a statistic reflecting the composite value of its components. ... The S&P 500 is an index containing the stocks of 500 Large-Cap corporations, most of which are American. ... The Russell Indexes (note that Russell uses Indexes rather than Indices) are a set of stock market indices of listed U.S. companies. ... Spes or Hope; engraving by Sebald Beham, German c1540 The stocks are a device used since medieval times for public humiliation, corporal punishment, and torture. ... The Lehman U.S. Aggregate (better known simply as the Lehman Aggregate or The Agg) is a common American bond index, akin to the S&P 500 for stocks, owned by Lehman Brothers. ... The Salomon Broad Investment Grade Index (known as the Salomon BIG or Citigroup BIG) is a common American bond index, akin to the S&P 500 for stocks, originally owned by Salomon Brothers and now run by its successor, Citigroup. ... The Merrill Lynch Domestic Master is a common American Bond index, analogous to the S&P 500 for stocks, owned by Merrill Lynch. ...


See also

The bond market, also known as the debit, credit, or fixed income market, is a financial market where participants buy and sell debt securities usually in the form of bonds. ... A bond fund is a fund that invests in bonds. ... A bond market index is a listing of bonds or fixed income instruments and a statistic reflecting the composite value of its components. ... Brady bonds are Dollar denominated bonds, named after U.S. Treasury Secretary Nicholas Brady Bonds, traded on the international bond market, allowing emerging countries to transform nonperforming debt into Brady bonds. ... A Eurobond is a bond that has been issued in one countrys currency but is traded outside of that country and in a different monetary system. ... In investment, the credit rating assesses the credit worthiness of a corporation. ... A collective action clause (CAC) allows a supermajority of bondholders to agree a debt restructuring that is legally binding on all holders of the bond, including those who vote against the restructuring. ... fuck fuck fuck you!!!!!! This article is about criticism of, and arguments against debt. ... In finance, a debenture is a long-term debt instrument used by governments and large companies to obtain funds. ... This article does not cite any references or sources. ... In finance, interest rate immunization is a strategy that insures that a change in interest rates will not affect the value of a portfolio. ... Following is a list of accounting topics. ... This aims to be a complete list of the articles on economics. ... Topics in finance include: // Finance an overview Arbitrage Capital (economics) Capital asset pricing model Cash flow Cash flow matching Debt Default Consumer debt Debt consolidation Debt settlement Credit counseling Bankruptcy Debt diet Debt-snowball method Discounted cash flow Financial capital Funding Financial modeling Entrepreneur Entrepreneurship Fixed income analysis Gap financing...

References

  1. ^ Eason, Yla (June 6, 1983). "Final Surge in Bearer Bonds" New York Times.
  2. ^ Quint, Michael (August 14, 1984). "Elements in Bearer Bond Issue". New York Times.
  3. ^ no byline (July 18, 1984). "Book Entry Bonds Popular". New York Times.
  4. ^ Chung, Amber. "BNP Paribas mulls second bond issue on offshore market", Taipei Times, 2007-04-19. Retrieved on 2007-07-04. 
  5. ^ Areddy, James T.. "Chinese Markets Take New Step With Panda Bond", The Wall Street Journal, 2005-10-11. Retrieved on 2007-07-06. 

Year 2007 (MMVII) is the current year, a common year starting on Monday of the Gregorian calendar and the AD/CE era. ... is the 185th day of the year (186th in leap years) in the Gregorian calendar. ... Year 2007 (MMVII) is the current year, a common year starting on Monday of the Gregorian calendar and the AD/CE era. ... is the 187th day of the year (188th in leap years) in the Gregorian calendar. ...

External links

  • The Securities Industry and Financial Markets Association
  • Bonds 101, bonds.yahoo.com
  • Bond ETFs, Investing in Bonds using exchange traded funds
  • Bond Glossary, bonds.yahoo.com
  • UK Debt Management Office
  • German Finance Agency
  • MoneyWeek Magazine - Investing in Bonds
  • InvestingInBonds.com, Investor education site sponsored by the Securities Industry and Financial Markets Association, includes real-time prices for corporate and municipal bonds
  • Bond Pricing@investopedia


  Bond market v d  
Fixed income | Bond | Debenture
Types of Bonds
By Issuer: Government bond | Sovereign bond | Agency bond
Municipal bond | Corporate bond | Emerging market debt
By Payout: Fixed rate bond | Floating rate note | Zero coupon bond
Inflation-indexed bond | Commercial paper | Accrual bond
Auction rate security | High-yield debt | Convertible bond
Mortgage-backed security | Asset-backed security
Derivatives
Bond option | Credit derivative | Credit default swap
Collateralized debt obligation | Collateralized mortgage obligation
Bond valuation
Pricing: Par value | Coupon | Clean price | Dirty price
Accrued interest | Day count convention
Yield analysis: Nominal yield | Current yield | Yield to maturity
Yield curve | Bond duration | Bond convexity
Credit analysis: Credit analysis | Credit risk
Spread analysis: Yield spread | Credit spread | Option adjusted spread
Interest rate models: Short rate models | Rendleman-Bartter | Vasicek
Ho-Lee | Hull-White | Cox-Ingersoll-Ross | Chen
Heath-Jarrow-Morton | Black-Derman-Toy

  Results from FactBites:
 
Bond Finance (1001 words)
Bond proceeds generated by SFMRBs are mainly allocated to the Department's First-Time Homebuyer Program (the Texas Homeownership Division manages the lending and distribution of bond proceeds after bond closing).
The Financial Administration Division and the Bond Finance Division monitor the financial status of the bonds and performs all responsibilities of the Department in accordance with the bond covenants as stated in the bonds' legal documents created as part of the issuance process.
Bond Finance is also responsible for complying with the Securities and Exchange Commission rules relating to the disclosure of information with the issuance and ongoing reporting of activities of the bonds.
Bond (finance) (774 words)
Bonds are securities but differ from shares of stock in that stock is an ownership interest (termed "equity"), but bonds are merely "debt": Therefore a stockholder is an owner, but a bond-holder is merely a creditor.
Bonds are issued by the government or other public authorities, credit institutions, and companies, and are sold through banks and stock brokers.
Bonds issued by the government of the United Kingdom in sterling are known as gilts[?].
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