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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. The field of finance refers to the concepts of Time, Money and Risk and how they are interrelated In Economics, a financial market is a mechanism that allows people to easily buy and sell ( Trade) financial Securities (such as stocks and bonds The bond market (also known as the debt, credit, or fixed income market) is a Financial market where participants buy and sell Debt A stock market, or (equity market is a private or public market for the trading of company Stock and derivatives of company The foreign exchange ( currency or forex or FX) market refers to the market for currencies. The derivatives markets are the Financial markets for derivatives The market can be divided into two that for exchange traded derivatives and that for Commodity markets are markets where raw or primary products are exchanged In Finance, the money market is the global Financial market for short-term borrowing and lending The spot market or cash market is 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 Real estate is a legal term (in some jurisdictions notably in the USA, United Kingdom There are two basic financial market participant categories Investor vs See Investor AB for the Swedish investment company An investor is any party that makes an Investment. Speculation, in a financial context is making an investment that increases the overall risk in a portfolio Institutional investors are organizations which pool large sums of money and invest those sums in companies 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 is a broad term used to describe a sector of Finance that was created to help transfer Risk using complex legal and corporate entities Capital budgeting (or investment appraisal is the planning process used to determine whether a firm's long term Investments such as new machinery replacement machinery new Financial risk management is the practice of creating economic value in a firm by using Financial instruments to manage exposure to Risk, particularly Accountancy or accounting is the measurement statement or provision of assurance about financial information primarily used by Lenders managers, Financial statements (or financial reports) are formal records of a business' financial The most general definition of an audit is an evaluation of a person organization system process project or product A credit rating agency ( CRA) is a company that assigns Credit ratings for Issuers of certain types of Debt obligations as well as the debt instruments Personal finance is the application of the principles of Finance to the monetary decisions of an individual or family unit Credit is the provision of resources (such as granting a Loan) by one party to another party where that second party does not reimburse the first party immediately thereby generating Debt is that which is owed usually referencing Assets owed but the term can cover other obligations A contract of employment is a category of Contract used in Labour law to attribute right and responsibilities between parties to a bargain Retirement is the point where a person stops employment completely A financial planner or personal financial planner is a practicing professional who helps people deal with various personal financial issues through proper planning which includes Public finance is a field of economics concerned with paying for collective or governmental activities and with the administration and design of those activities A banker or bank is a Financial institution whose primary activity is to act as a payment agent for customers and to borrow and lend money Fractional-reserve banking is the banking practice in which Banks keep only a fraction of the value of their Bank notes and demand deposits in reserve A central bank, reserve bank, or monetary authority is the entity responsible for the Monetary policy of a country or of a group of member states This is a list of Banks throughout the world Africa Central Bank Bank A deposit account is a current account at a Banking institution that allows money to be deposited and withdrawn by the account holder with the transactions and resulting balance A loan is a type of Debt. This article focuses exclusively on monetary loans although in practice any material object might be lent In Economics, money supply, or money stock, is the total amount of money available in an Economy at a particular point in time Financial regulations are a form of Regulation or supervision which subjects Financial institutions to certain requirements restrictions and guidelines aiming to 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 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 A recession is a contraction phase of the Business cycle. The U A stock market crash is a sudden dramatic decline of Stock prices across a significant cross-section of a Stock market. The field of finance refers to the concepts of Time, Money and Risk and how they are interrelated Debt is that which is owed usually referencing Assets owed but the term can cover other obligations A security is a Fungible, Negotiable instrument representing financial value The coupon or coupon rate of a bond is the amount of interest paid per year expressed as a percentage of the face value of the bond Maturity is a life of security It may also refer to the final payment date of a Loan or other Financial instrument, at which point all remaining Interest

A bond is simply a loan in the form of a security with different terminology: The issuer is equivalent to the borrower, the bond holder to the lender, and the coupon to the interest. A loan is a type of Debt. This article focuses exclusively on monetary loans although in practice any material object might be lent Bonds enable the issuer to finance long-term investments with external funds. Investment or investing is a term with several closely-related meanings in Business management, Finance and Economics, related to saving Note that certificates of deposit (CDs) or commercial paper are considered to be money market instruments and not bonds. A certificate of deposit or CD is a Time deposit, a financial product commonly offered to consumers by Banks thrift institutions, and Commercial paper is an unsecured Promissory note with a fixed maturity of one to 270 days In Finance, the money market is the global Financial market for short-term borrowing and lending

Bonds and stocks are both securities, but the major difference between the two is that stock-holders are the owners of the company (i. Software for Fixed assets management and Stock control developed in 2004. A security is a Fungible, Negotiable instrument representing financial value e. , they have an equity stake), whereas bond-holders are lenders to the issuing company. Software for Fixed assets management and Stock control developed in 2004. Another difference is that 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. Consols (originally short for consolidated annuities but can now be taken to mean consolidated stock are a form of British Government bond ( gilt) dating originally A perpetuity is an annuity that has no definite end or a stream of cash payments that continues forever e. , bond with no maturity).

Contents 1 Issuing bonds 2 Features of bonds 3 Types of bonds 3.1 Bonds issued by foreign entities 4 Trading and valuing bonds 5 Investing in bonds 5.1 Bond indices 6 See also 7 References 8 External links

Issuing bonds

Bonds are issued by public authorities, credit institutions, companies and supranational institutions in the primary markets. Supranationalism is a method of decision-making in political communities wherein power is democratically entrusted to independent experienced appointed personalities or to representatives The primary is that part of the Capital markets that deals with the issuance of new securities. 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.

Features of bonds

The most important features of a bond are:

• nominal, principal or face amount—the amount on 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. Maturity is a life of security It may also refer to the final payment date of a Loan or other Financial instrument, at which point all remaining Interest 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 tenure 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. Year 2005 ( MMV) was a Common year starting on Saturday (link displays full calendar of the Gregorian calendar. Please update other articles as well to avoid contradiction within Wikipedia e 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. The coupon or coupon rate of a bond is the amount of interest paid per year expressed as a percentage of the face value of the bond 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 London Interbank Offered Rate (or LIBOR, ˈlaɪbɔr is a daily Reference rate based on the Interest rates at which Banks offer to lend 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. Options are financial instruments that convey the right but not the obligation to engage in a future transaction on some Underlying security, or in a Futures Example of a call option on a stock Buy a call The buyer expects that the price may go up These bonds are referred to as callable bonds. Callable bond is a type of bond that allows the issuer of the bond to retain the privilege of redeeming the bond at some point before the bond reaches the date of maturity Most callable bonds allow the issuer to repay the bond at par. Par value, in Finance and Accounting, means stated value or face value. 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.
  • putability—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. Example of a put option on a stock Buy a Put A Buyer thinks price of a stock will decrease (Note: "Putable" denotes an embedded put option; "Puttable" denotes that it may be putted. )
  • call dates and put dates—the dates on which callable and putable bonds can be redeemed early. 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 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. In Finance, a convertible bond (or convertible debenture is a type of bond that can be converted into shares of Stock in the issuing company

• exchangeable bond allows for exchange to shares of a corporation other than the issuer. In Finance, an exchangeable bond (or XB is a straight bond with an embedded option to exchange the bond for the Stock of a company other than

Types of bonds

• Fixed rate bonds have a coupon that remains constant throughout the life of the bond. In finance a fixed rate bond is a bond with a fixed coupon (interest rate as opposed to a Floating rate note.

• 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. Floating rate notes ( FRNs) are bonds that have a variable coupon, equal to a Money market Reference rate, like LIBOR or The London Interbank Offered Rate (or LIBOR, ˈlaɪbɔr is a daily Reference rate based on the Interest rates at which Banks offer to lend The Euro Interbank Offered Rate (or Euribor) is a daily Reference rate based on the averaged Interest rates at which Banks offer to lend unsecured 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. In Finance, a high yield bond ( non-investment grade bond, speculative grade bond or junk bond) is a bond that is rated below A credit rating agency ( CRA) is a company that assigns Credit ratings for Issuers of certain types of Debt obligations as well as the debt instruments As these bonds are relatively risky, investors expect to earn a higher yield. These bonds are also called junk bonds. In Finance, a high yield bond ( non-investment grade bond, speculative grade bond or junk bond) is a bond that is rated below

• Zero coupon bonds do not pay any interest. A Zero coupon bond (also called a discount bond or deep discount bond) is a bond bought at a price lower than its Face value, with the face value They trade at a substantial discount from par value. Par value, in Finance and Accounting, means stated value or face 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. A Zero coupon bond (also called a discount bond or deep discount bond) is a bond bought at a price lower than its Face value, with the face value In other words, the coupons are separated from the final principal payment of the bond and traded independently.

• Inflation linked bonds, in which the principal amount is indexed to inflation. Inflation-indexed bonds (also known as inflation-linked bonds or colloquially as linkers) are bonds where the principal is indexed to Inflation The interest rate is lower than for fixed rate bonds with a comparable maturity. However, as the principal amount grows, the payments increase with inflation. The government of the United Kingdom was the first to issue inflation linked Gilts in the 1980s. Her Majesty's Government, or when the monarch is male His Majesty's Government, is the title used by the Government of the United Kingdom, based at Gilts are bonds issued by the governments of the United Kingdom, South Africa, or Ireland. The 1980s was the decade spanning from January 1 1980 to December 31 1989. Treasury Inflation-Protected Securities (TIPS) and I-bonds are examples of inflation linked bonds issued by the U. Treasury securities are Government bonds issued by the United States Department of the Treasury through the Bureau of the Public Debt. S. government.

• Other indexed bonds, for example equity linked notes and bonds indexed on a business indicator (income, added value) or on a country's GDP.

• Asset-backed securities are bonds whose interest and principal payments are backed by underlying cash flows from other assets. In Finance, an asset-backed security is a type of debt security that is based on pools of Assets or collateralized by the cash flows from a specified pool Examples of asset-backed securities are mortgage-backed securities (MBS's), collateralized mortgage obligations (CMOs) and collateralized debt obligations (CDOs). 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 Payments A collateralized mortgage obligation (CMO is a financial debt vehicle that was first created in June 1983 by investment banks Salomon Brothers and First Boston for For other subjects with the same abbreviation see CDO. Collateralized debt obligations (CDOs are an unregulated type of Asset-backed security

• Subordinated bonds are those that have a lower priority than other bonds of the issuer in case of liquidation. In Finance, subordinated debt (also known as subordinated loan, subordinated bond, subordinated debenture or junior debt) is debt In case of bankruptcy, there is a hierarchy of creditors. First the liquidator is paid, then government taxes, etc. 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 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. In Structured finance, a tranche (misspelled as traunch or traunche) is one of a number of related securities offered as part of the same transaction The senior tranches get paid back first, the subordinated tranches later.

• Perpetual bonds are also often called perpetuities. A perpetual bond, which is also known as a Perpetual or just a Perp, is a bond with no Maturity date. A perpetuity is an annuity that has no definite end or a stream of cash payments that continues forever 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. Year 1888 ( MDCCCLXXXVIII) was a Leap year starting on Sunday (click on link for calendar of the Gregorian calendar (or a 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]

• Bear bond, often confused with Bearer bond, is a bond issued in Russian roubles by a Russian entity in the Russian market.

• 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. In the United States, a municipal bond (or muni) is a bond issued by a city or other local government or their agencies 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. 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

• 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. Lottery Bonds are a type of government bond in which some randomly selected bonds within the issue are redeemed at a higher value than the face value of the bond 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. War bonds are a type of Savings bond used by combatant nations to help fund a war effort and as a Monetary policy for controlling Inflation from an

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 currencies 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. United States entity is a designation given to some entities ( Firms etc S.
• 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
• Matrioshka Bond, a Russian rouble-denominated bond issued in the Russian Federation by non-Russian entities. 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 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 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 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 name derives from the famous Russian wooden dolls, Matrioshka, popular among foreign visitors to Russia
• Arirang bond, a Korean won-denominated bond issued by a non-Korean entity in the Korean market^[4]
• Kimchi bond, a non-Korean won-denominated bond issued by a non-Korean entity in the Korean market. A matryoshka doll or a Russian nested doll, also called a stacking doll is a set of dolls of decreasing sizes placed one inside the other An Arirang bond is a won -denominated bond issued by a foreign entity in South Korea. A Kimchi bond is a non- won -denominated bond issued in the South Korean market ^[5]
• Ninja loan, a Japanese yen syndicated loan by a non-Japanese borrower [1]
• Formosa bond, a non-New Taiwan Dollar-denominated bond issued by a non-Taiwan entity in the Taiwan market^[6]
• Panda bond, a Chinese renminbi-denominated bond issued by a non-China entity in the People's Republic of China market^[7]
• State of Israel bond, a bond denominated in multiple currencies issued by the State of Israel through the Development Corporation of Israel. No Income No Asset (NINA is a term used in the Unites States mortgage industry to describe one of many documentation types which lenders may allow when Underwriting a Mortgage A Formosa bond is a non- New Taiwan Dollar -denominated bond issued in Taiwan by a foreign institution A Panda bond is a Chinese Renminbi -denominated bond from a non-Chinese issuer sold in the People's 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. This is because if the prices do not converge, arbitrageurs can make risk-free profit by buying the bonds at a discount and collecting the face value at maturity. In Economics and Finance, arbitrage is the practice of taking advantage of a price differential between two or more Markets striking a combination of matching 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. The United States of America —commonly referred to as the The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom, the UK or Britain,is a Sovereign state located 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. Treasury Bill, are always issued at a discount, and pay par amount at maturity rather than paying coupons. Treasury securities are Government bonds issued by the United States Department of the Treasury through the Bureau of the Public Debt. 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. Present value is the value on a given date of a future payment or series of future payments discounted to reflect the Time value of money and other factors such as Investment In Finance, yield is a percentage that measures the cash returns to the owners of a security In Finance, rate of return ( ROR) also known as return on investment ( ROI) rate of profit or sometimes just return, is 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 market price of a bond may include the accrued interest since the last coupon date. 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 In Finance, accrued interest is the Interest that has accumulated since the principal Investment, or since the previous interest payment if there (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". The dirty price of a bond represents the value of a bond exclusive of any commissions or fees (See also Accrual bond. 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 excluding accrued interest is sometimes known as the Clean price. In Finance, the clean price is the Price of a bond excluding any Interest that has accrued since issue or the most recent coupon payment

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). The current yield, interest yield, income yield, flat yield or running yield is a financial term used in reference to bonds Earnings yield is the Quotient of Earnings per share divided by the Share price. Nominal yield is the coupon rate of a Fixed income security, which is a fixed percentage of the par value

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. Redemption value is the price at which the issuing company may choose to repurchase a security before its maturity date

The relationship between yield and maturity for otherwise identical bonds is called a yield curve. In Finance, the yield curve is the relation between the Interest rate (or cost of borrowing and the time to maturity of the debt for a given borrower

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. The bond market (also known as the debt, credit, or fixed income market) is a Financial market where participants buy and sell Debt S. , Japan and western Europe, bonds trade in decentralized, dealer-based over-the-counter markets. Over-the-counter ( OTC) trading is to Trade Financial instruments such as Stocks bonds, commodities or derivatives In such a market, market liquidity is provided by dealers and other market participants committing risk capital to trading activity. Market liquidity is a Business, Economics or Investment term that refers to an Asset 's ability to be easily converted through an act of buying 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. A counterparty (sometimes contraparty) is a legal and financial term 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.

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 (also known as bid/ask spread) for assets (such as Stock, Futures contracts options, or Currency pairs is

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. A bond fund is a Collective investment scheme that invests in bonds and other debt securities Still, in the U. S. , nearly ten percent of all bonds outstanding are held directly by households.

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. Software for Fixed assets management and Stock control developed in 2004. 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. Dividends are payments made by a Corporation to its Shareholder members 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. Bankruptcy is a legally declared inability or impairment of ability of an individual or organization to pay their Creditors Creditors may file a bankruptcy petition against When a bond or other financial derivative defaults, the recovery amount is the amount that the underlying company can afford to pay However, bonds can be risky:

• Fixed rate bonds are subject to interest rate risk, meaning that their market prices will decrease in value when the generally prevailing interest rates rise. Interest rate risk is the risk (variability in value borne by an interest-bearing asset such as a loan or a bond, due to variability of interest rates. 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. 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 Note that 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 and do not suffer from interest rate risk.

However, price changes in a bond immediately affect mutual funds that hold these bonds. A mutual fund is a professionally managed type of collective investments that pools money from many investors and Invests it in Stocks 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. In finance a portfolio is an appropriate mix of or collection of investments held by an institution or a private individual 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. In Finance, the duration of a financial asset measures the sensitivity of the asset's price to Interest rate movements expressed as a number of years Efforts to control this risk are called immunization or hedging. In Finance, interest rate immunization is a strategy that ensures that a change in interest rates will not affect the value of a portfolio In Finance, a hedge is an investment that is taken out specifically to reduce or cancel out the Risk in another investment

• 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 credit rating agency ( CRA) is a company that assigns Credit ratings for Issuers of certain types of Debt obligations as well as the debt instruments Standard & Poor's ( S&P) is a division of McGraw-Hill that publishes financial research and analysison Stocks and bonds. Moody's Corporation ( is the holding company for Moody's Investors Service which performs financial research and analysis on commercial and government entities 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. Bankruptcy is a legally declared inability or impairment of ability of an individual or organization to pay their Creditors Creditors may file a bankruptcy petition against Under the laws of many countries (including the United States and Canada), 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. Chapter 11 is a chapter of the United States Bankruptcy Code, which permits reorganization under the Bankruptcy laws of the United States MCI Inc is an American Telecommunications company that is headquartered in Ashburn Virginia. "MMIV" redirects here For the Modest Mouse album see " Baron von Bullshit Rides Again " 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.

• 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. 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 a Stock market index containing the stocks of 500 Large-Cap Corporations all of which are from the United States. Russell's family of global equity indexes including the industry-leading U Stocks are devices used since Medieval times for Public humiliation, Corporal punishment, and Torture. The most common American benchmarks are the Lehman Aggregate, Citigroup BIG and Merrill Lynch Domestic Master. The Lehman Aggregate Bond Index is a broad base index often used to represent investment grade bonds being traded in United States The Salomon Broad Investment Grade Index (known as the Salomon BIG or Citigroup BIG) is a common American Bond index, akin to the The Merrill Lynch Domestic Master is a common American Bond index analogous to the S&P 500 for stocks owned by Merrill Lynch. 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.

See also

• Bond market
• Bond fund
• Bond market index
• Brady Bonds
• Eurobond
• Bond credit rating
• Collective action clause
• Criticism of debt
• Debenture
• Fixed income
• Immunization (finance)
• List of accounting topics
• List of economics topics
• List of finance topics

References

External links

• Bonds links at the Open Directory Project

The Open Directory Project ( ODP) also known as dmoz (from directory

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