bond

(noun)

Evidence of a long-term debt, by which the bond issuer (the borrower) is obliged to pay interest when due, and repay the principal at maturity, as specified on the face of the bond certificate. The rights of the holder are specified in the bond indenture, which contains the legal terms and conditions under which the bond was issued. Bonds are available in two forms: registered bonds and bearer bonds.

Related Terms

Examples of bond in the following topics:

  • Corporate Bonds

    • A corporate bond is issued by a corporation seeking to raise money in order to expand its business.
    • A corporate bond is issued by a corporation seeking to raise money in order to expand the business.
    • (The term commercial paper is sometimes used for instruments with a shorter maturity period. ) Sometimes, corporate bond is used in reference to all bonds with the exception of those issued by governments in their own currencies.
    • Strictly speaking, however, the term only applies to bonds issued by corporations .
    • Corporate bonds are often listed on major exchanges (and known as listed bonds) and ECNs, and the coupon (i.e., the interest payment) is usually taxable.

  • Credit Ratings

    • Bond ratings below BBB/Baa are considered to be not investment grade and are colloquially called junk bonds.
    • Bonds that are not rated as investment-grade bonds are known as high yield bonds or more derisively as junk bonds.
    • The risks associated with investment-grade bonds (or investment-grade corporate debt) are considered significantly higher than those associated with first-class government bonds.
    • The difference between rates for first-class government bonds and investment-grade bonds is called investment-grade spread.
    • Each credit rating agency designates the quality of bonds with letters.

  • Long-Term Loans

    • Three common examples of long term loans are government debt, mortgages, and debentures (bonds).
    • Governments usually borrow by issuing securities, government bonds, and bills.
    • Government bonds are issued by a national government.
    • Such bonds are often denominated in the country's domestic currency, and they are sometimes regarded as risk-free bonds, as national governments can raise taxes or reduce spending up to a certain point.
    • In many cases, governments print more money in order to redeem the bond at maturity.

  • Debt Finance

    • A bond entitles the holder to repayment of the principal sum, plus interest.
    • Bonds are issued to investors in a marketplace when an institution wishes to borrow money.
    • Bonds have a fixed lifetime, usually a number of years; with long-term bonds, lasting over thirty years, being less common.
    • At the end of the bond's life, the money should be repaid in full.
    • Bonds may be traded in bond markets, and are widely used as relatively safe investments in comparison to equity.

  • Open Market Operations

    • Open market operations (OMO) refer to a central bank's selling or buying of government bonds on the open market.
    • They can achieve this through expansionary monetary policy, buying government bonds and increasing the money supply.
    • An open market operation (also known as OMO) is an activity by a central bank (in the U.S. it is the Fed) to buy or sell government bonds on the open market.

  • Liabilities

    • Examples of long-term liabilities include long-term bonds, leases, pension obligations, and debentures.
    • They usually include payables such as wages, accounts, taxes, and accounts payables, unearned revenue when adjusting entries, portions of long-term bonds to be paid this year, short-term obligations (e.g., from purchase of equipment).
    • They usually include issued long-term bonds, notes payables, long-term leases, pension obligations, and long-term product warranties.

  • Stability Through Fiscal Policy

    • When the government runs a budget deficit, funds will need to come from public borrowing (the issue of government bonds), overseas borrowing, or monetizing the debt.
    • When governments fund a deficit with the issuing of government bonds, interest rates can increase across the market, because government borrowing creates higher demand for credit in the financial markets.
    • This is because, all other things being equal, the bonds issued from a country executing expansionary fiscal policy now offer a higher rate of return.
    • To purchase bonds originating from a certain country, foreign investors must obtain that country's currency.

  • Elements of economic globalization

    • Direct investment in constructing production facilities, is distinguished from portfolio investment, which can take the form of short-term capital flows (e.g. loans), or long-term capital flows (e.g. bonds) (Stiglitz, 2003).
    • Capital market flows: In many countries, particularly in the developed world, investors have increasingly diversified their portfolios to include foreign financial assets, such as international bonds, stocks or mutual funds, and borrowers have increasingly turned to foreign sources of funds (World Briefing, Paper, 2001).

  • Balance of Payments

    • Treasury bonds.
    • The term balance of payments often refers to this example: a country's balance of payments is said to be in surplus (balance of payments is positive) by a certain amount if sources of funds (such as export goods sold and bonds sold) exceed uses of funds (such as paying for imported goods and paying for foreign bonds purchased) by that amount.

  • Direct Investment

    • FDI is in contrast to portfolio investment which is a passive investment in the securities of another country, such as stocks and bonds.