Bond (finance)

bondsbondbond issueprincipalbond issuesbondholderbondholdersdebtbondingprincipal sum
In finance, a bond is an instrument of indebtedness of the bond issuer to the holders.wikipedia
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Municipal bond

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The most common types of bonds include municipal bonds and corporate bonds.
A municipal bond, commonly known as a Muni Bond, is a bond issued by a local government or territory, or one of their agencies.

Corporate bond

corporate bondscorporate debtcorporate
The most common types of bonds include municipal bonds and corporate bonds.
A corporate bond is a bond issued by a corporation in order to raise financing for a variety of reasons such as to ongoing operations, M&A, or to expand business.

Interest

rate of interestsimple interestinterest rates
The bond is a debt security, under which the issuer owes the holders a debt and (depending on the terms of the bond) is obliged to pay them interest (the coupon) or to repay the principal at a later date, termed the maturity date.
Interest is payment from a borrower or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum (i.e., the amount borrowed), at a particular rate.

Coupon (bond)

couponcoupon ratecoupons
The bond is a debt security, under which the issuer owes the holders a debt and (depending on the terms of the bond) is obliged to pay them interest (the coupon) or to repay the principal at a later date, termed the maturity date.
A coupon payment on a bond is the annual interest payment that the bondholder receives from the bond's issue date until it matures.

Security (finance)

securitiessecuritydebt securities
The bond is a debt security, under which the issuer owes the holders a debt and (depending on the terms of the bond) is obliged to pay them interest (the coupon) or to repay the principal at a later date, termed the maturity date. Bonds and stocks are both securities, but the major difference between the two is that (capital) stockholders have an equity stake in a company (that is, they are owners), whereas bondholders have a creditor stake in the company (that is, they are lenders).
debt securities (e.g., banknotes, bonds and debentures)

Finance

financialfinancesfiscal
In finance, a bond is an instrument of indebtedness of the bond issuer to the holders.
The second, "sources of capital" relates to how these investments are to be funded: investment capital can be provided through different sources, such as by shareholders, in the form of equity (privately or via an initial public offering), creditors, often in the form of bonds, and the firm's operations (cash flow).

Stock

equitiesequityshares
Bonds and stocks are both securities, but the major difference between the two is that (capital) stockholders have an equity stake in a company (that is, they are owners), whereas bondholders have a creditor stake in the company (that is, they are lenders).
In the United Kingdom, Republic of Ireland, South Africa, and Australia, stock can also refer to completely different financial instruments such as government bonds or, less commonly, to all kinds of marketable securities.

Yield to maturity

redemption yieldYTMbook yield
The overall rate of return on the bond depends on both the terms of the bond and the price paid.
The yield to maturity (YTM), book yield or redemption yield of a bond or other fixed-interest security, such as gilts, is the (theoretical) internal rate of return (IRR, overall interest rate) earned by an investor who buys the bond today at the market price, assuming that the bond is held until maturity, and that all coupon and principal payments are made on schedule.

High-yield debt

junk bondjunk bondsjunk status
High-yield bonds are bonds that are rated below investment grade by the credit rating agencies.
In finance, a high-yield bond (non-investment-grade bond, speculative-grade bond, or junk bond) is a bond that is rated below investment grade.

Loan

loansconsumer loanslending
Thus a bond is a form of loan or IOU: the holder of the bond is the lender (creditor), the issuer of the bond is the borrower (debtor), and the coupon is the interest.
For other institutions, issuing of debt contracts such as bonds is a typical source of funding.

Primary market

bring a security issue to the marketoriginal issuesprimary
Bonds are issued by public authorities, credit institutions, companies and supranational institutions in the primary markets.
In a primary market, companies, governments or public sector institutions can raise funds through bond issues and corporations can raise capital through the sale of new stock through an initial public offering (IPO).

Dirty price

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The price can be quoted as clean or dirty.
The price of a bond is the present value of its future cash-flows.

Embedded option

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Optionality: Occasionally a bond may contain an embedded option; that is, it grants option-like features to the holder or the issuer:
An embedded option is a component of a financial bond or other security, and usually provides the bondholder or the issuer the right to take some action against the other party.

Callable bond

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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.
A callable bond (also called redeemable bond) is a type of bond (debt security) that allows the issuer of the bond to retain the privilege of redeeming the bond at some point before the bond reaches its date of maturity.

Commercial paper

papercommercialcommercial papers
Certificates of deposit (CDs) or short-term commercial paper are considered to be money market instruments and not bonds: the main difference is the length of the term of the instrument.
Commercial paper is usually sold at a discount from face value, and generally carries lower interest repayment rates than bonds due to the shorter maturities of commercial paper.

Current yield

The current yield, or running yield, which is simply the annual interest payment divided by the current market price of the bond (often the clean price).
The current yield, interest yield, income yield, flat yield, market yield, mark to market yield or running yield is a financial term used in reference to bonds and other fixed-interest securities such as gilts.

Floating rate note

floatersfloating ratefloating rate bonds
Floating rate notes (FRNs, floaters) have a variable coupon that is linked to a reference rate of interest, such as Libor or Euribor. For example, the coupon may be defined as three-month USD LIBOR + 0.20%. The coupon rate is recalculated periodically, typically every one or three months.
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 quoted spread (also known as quoted margin). The spread is a rate that remains constant.

Zero-coupon bond

zero-coupondiscount bondzero coupon bonds
Zero-coupon bonds (zeros) pay no regular interest. They are issued at a substantial discount to par value, so that the interest is effectively rolled up to maturity (and usually taxed as such). The bondholder receives the full principal amount on the redemption date. An example of zero coupon bonds is Series E savings bonds issued by the U.S. government. Zero-coupon bonds may be created from fixed rate bonds by a financial institution separating ("stripping off") the coupons from the principal. In other words, the separated coupons and the final principal payment of the bond may be traded separately. See IO (Interest Only) and PO (Principal Only).
A zero-coupon bond (also discount bond or deep discount bond) is a bond where the face value is repaid at the time of maturity.

Puttable bond

putable bond
Putability — Some bonds give the holder the right to force the issuer to repay the bond before the maturity date on the put dates; see put option. These are referred to as retractable or putable bonds.
Puttable bond (put bond, putable or retractable bond) is a bond with an embedded put option.

Option (finance)

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Optionality: Occasionally a bond may contain an embedded option; that is, it grants option-like features to the holder or the issuer:
Many choices, or embedded options, have traditionally been included in bond contracts.

Convertible bond

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Convertible bonds let a bondholder exchange a bond to a number of shares of the issuer's common stock. These are known as hybrid securities, because they combine equity and debt features.
In finance, a convertible bond or convertible note or convertible debt (or a convertible debenture if it has a maturity of greater than 10 years) is a type of bond that the holder can convert into a specified number of shares of common stock in the issuing company or cash of equal value.

Indenture

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Indentures and Covenants — An indenture is a formal debt agreement that establishes the terms of a bond issue, while covenants are the clauses of such an agreement. Covenants specify the rights of bondholders and the duties of issuers, such as actions that the issuer is obligated to perform or is prohibited from performing. In the U.S., federal and state securities and commercial laws apply to the enforcement of these agreements, which are construed by courts as contracts between issuers and bondholders. 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 bondholders.
In the case of bonds, the indenture shows the pledge, promises, representations and covenants of the issuing party.

Inflation-indexed bond

inflation-indexed bondsinflation indexedinflation indexed bonds
Inflation-indexed bonds (linkers) (US) or Index-linked bond (UK), in which the principal amount and the interest payments are indexed to inflation. The interest rate is normally lower than for fixed rate bonds with a comparable maturity (this position briefly reversed itself for short-term UK bonds in December 2008). However, as the principal amount grows, the payments increase with inflation. The United Kingdom was the first sovereign issuer to issue inflation linked gilts in the 1980s. Treasury Inflation-Protected Securities (TIPS) and I-bonds are examples of inflation linked bonds issued by the U.S. government.
Daily inflation-indexed bonds (also known as inflation-linked bonds or colloquially as linkers) are bonds where the principal is indexed to inflation or deflation on a daily basis in terms of the official Daily CPI or monetized daily indexed unit of account like the Unidad de Fomento in Chile and the Real Value unit of Colombia.

Money market

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Certificates of deposit (CDs) or short-term commercial paper are considered to be money market instruments and not bonds: the main difference is the length of the term of the instrument.
This contrasts with the capital market for longer-term funding, which is supplied by bonds and equity.

Debt

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Convertible bonds let a bondholder exchange a bond to a number of shares of the issuer's common stock. These are known as hybrid securities, because they combine equity and debt features.
Commercial debt is generally subject to contractual terms regarding the amount and timing of repayments of principal and interest.