Types of Bonds

Bond and Bond Funds

When you invest in a bond, you buy the debt of its issuer, which might be a European government, the U.S. government, a sub sovereign entity or borrowing authority, a company or a special purpose entity that holds assets such as mortgages. Every bond has certain characteristics:

  • A definite maturity date when the bond issuer promises to repay the bondholder who owns the security at the time.
  • A promise to pay (taxable or tax favourable) interest at a stated “coupon” rate in defined intervals over the life of a bond.
  • A yield, or return on investment, which is a function of the bond’s coupon rate and the price the investor pays, which may be more or less than the bond’s face value depending on a variety of factors.

A credit rating indicates the likelihood that the issuer will be able to repay its debt.

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