Types Of Bond: 7 Types Of Bond Explained

Types Of Bond: 7 Types Of Bond Explained

What is a bond?

In finance, the bond is called as an instrument of fixed income security created to raise the capital. It is a loan agreement between the issuer and the investor of the bond, where the specified amount should be paid by the issuer at the specific dates. To raise the money and the number of projects and activities municipalities, companies, state and the sovereign government use the bonds.

Characteristics of bond

1)Face value is the main characteristics of the bond and it is called the money amount at the maturity of the bond and the reference amount of the calculating interest payments.

2)The coupon rate is the interest rate of the bond will be paid by the issuer of the bond on the face value. It is expressed as a percentage.

3)Coupon dates are the payment of the interest by the bond issuer on the particular dates.

4)The maturity date is considered to be a date where the bond issuer pays the face value of the bond to the bondholder.

7 main issuer types of bonds you need to know.

1) Treasury bonds

It is a finance issued by the federal government to the budget deficits and it is free from the credit risk. The income is found to be always low economically considered to be a high yielding bond. It is free from the state income taxes.

2) Other U.S government bonds

These bonds are also called as agency bonds issued by federal agencies. Credit risk is found to be minimal and therefore this yields higher than the Treasury bond.  At federal and state levels, the interest on the bond is found to be taxable.

3) The investment made corporate bonds

They are the strong balance sheets issued by the companies or the financial vehicles. They carry at least the ratings of the triple B. the yield of this bond is high compared to the treasury and the agency bonds. But the performance is found to be lower than the Treasury bond.

4) High yield bonds

They are the weak balance sheets issued by the companies and the financial vehicles. The ratings are below the triple B. High yield in price is to the health of corporate bonds.

5)Foreign bonds

According to Lipper securities are dollar-denominated and this bond has a foreign currency of one-third of its assets.

6) Mortgage-backed bonds

The face value for this bond is $25,000, higher than the other types of bonds.

7) Municipal bonds

It is often called as the munis, issued by the U.S and local governments or other agencies. It is classified under the investment grade and high yielding varieties. Tax-free interest.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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