Securities

Securities Bond Equities Investment Fund Derivatives Structured finance Agency Securities For security (collateral), the legal right given to a creditor by a borrower, see security interest A security is a fungible, negotiable interest representing financial value. ... Image File history File links Vereinigte_Ostindische_Compagnie_bond. ... Ownership equity, commonly known simply as equity, also risk or liable capital, is a financial term for the difference between a companys assets and liabilities -- that is, the value that accrues to the owners (sole proprieter, partners, or shareholders). ... A collective investment scheme is a way of investing money with other people to participate in a wider range of investments than may be feasible for an individual investor and to share the costs of doing so. ... Derivatives traders at the Chicago Board of Trade. ... Structured finance describes any non-standard way of raising money. ... This article or section does not cite its references or sources. ...

Markets Bond market Stock market Futures market Foreign exchange market Commodity market Spot market Over-the-counter Market (OTC) The bond market, also known as the debit, credit, or fixed income market, is a financial market where participants buy and sell debt securities usually in the form of bonds. ... A stock market is a market for the trading of company stock, and derivatives of same; both of these are securities listed on a stock exchange as well as those only traded privately. ... A futures contract is a form of forward contract, a contract to buy or sell an asset of any kind at a pre-agreed future point in time, that has been standardised for a wide range of uses. ... The foreign exchange (currency or forex or FX) market exists wherever one currency is traded for another. ... This article is in need of attention. ... Template:The Spot Market The Spot Market or Cash Marketis 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, or derivatives directly between two parties. ...

Bonds by coupon Fixed rate bond Floating rate note Zero coupon bond Inflation-indexed bond Commercial paper Perpetual bond In finance, a Fixed rate bond is a security issued by a government or a business corporation that pays a fixed amount of interest (coupon rate) on the face value (principal/par value) of the bond periodically (often every six months or annually) to the owner until a date certain... 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 spread. ... Zero coupon bonds are bonds which do not pay periodic coupons, or so-called interest payments. ... Inflation-indexed bonds (also known as linkers) are bonds whose principal are indexed to inflation, cutting out inflation risk. ... Commercial paper is a money market security issued by large banks and corporations. ... A perpetual bond, which is also known as a Perpetual or just a Perp, is a bond with no maturity date. ...

Bonds by issuer Corporate bond Government bond Municipal bond Sovereign bond A Corporate bond is a bond issued by a corporation, as the name suggests. ... A government bond is a bond issued by a national government denominated in the countrys own currency. ... In the United States, a municipal bond or muni is a bond issued by a state, city or other local government, or their agencies. ... A sovereign bond is a bond issued by a national government denominated in a foreign currency. ...

Equities (Stocks) Stock Share IPO Short Selling It has been suggested that shareholder be merged into this article or section. ... In finance a share is a unit of account for various financial instruments including stocks, mutual funds, limited partnerships, and REITs. ... An initial public offering (IPO) is the first sale of a corporations common shares to public investors. ... It has been suggested that this article or section be merged with Short selling. ...

Investment Funds Mutual fund Index Fund Exchange-traded fund (ETF) Closed-end fund Segregated fund A mutual fund is a form of collective investment that pools money from many investors and invests their money in stocks, bonds, short-term money market instruments, and/or other securities. ... An index fund or index tracker is a collective investment scheme that aims to replicate the movements of an index of a specific financial market, or a set of rules of ownership that are held constant, regardless of market conditions. ... Exchange-traded funds (or ETFs) are closed-ended collective investment schemes, traded as shares on most global stock exchanges. ... A closed-end fund is a collective investment scheme with a limited number of shares. ... Segregated Funds are a classification of funds administered by an insurance company in the form of individual, variable life insurance contracts offering certain guarantees to the policyholder such as reimbursement of capital upon death. ...

Structured Finance Securitization Asset-backed security Collateralized debt obligation Collateralized mortgage obligation Credit linked note Mortgage-backed security Unsecured bond Agency Securities Securitization is a financing technique that allows the corporation to separate credit origination and funding activities. ... Asset-backed securities are a type of bond that is based on pools of assets. ... Collateralized debt obligations (CDOs) are a type of asset-backed security or structured finance product. ... A Collateralized Mortgage Obligation (CMO) is a type of Mortgage Backed Security, which has been divided up into tranches. ... A credit linked note is a security created through a special purpose company or trust, designed to offer investors par value at maturity unless a referenced credit defaults. ... 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 mortgages. ... Unsecured debt is a financial term that refers to any type of debt that is not collateralized by any specified assets in the event of default. ... This article or section does not cite its references or sources. ...

Derivatives Options Warrants Futures Forwards Swaps Credit Derivatives Hybrid Securities An option contract is an agreement in which the buyer (holder) has the right (but not the obligation) to exercise by buying or selling an asset at a set price (strike price) on (European style option) or before (American style option) a future date (the exercise date or expiration); and... For other uses of the term Warrant, see Warrant (disambiguation) A warrant is a security that entitles the holder to buy or sell a certain additional quantity of an underlying security. ... In finance, a futures contract is a standardized contract, traded on a futures exchange, to buy or sell a certain underlying instrument at a certain date in the future, at a specified price. ... A forward contract is an agreement between two parties to buy or sell an asset (which can be of any kind) at a pre-agreed future point in time. ... In finance a swap is a derivative, where two counterparties exchange one stream of cash flows against another stream. ... A credit derivative is a contract (derivative) to transfer the risk of the total return on a credit asset falling below an agreed level, without transfer of the underlying asset. ... Definition A hybrid security, as the name implies, is a security that combines two or more different financial instruments. ...

In finance, a bond is a debt security, in which the issuer owes the holders a debt and is obliged to repay the principal and interest (the coupon) at a later date, termed maturity. Other stipulations may also be attached to the bond issue, such as the obligation for the issuer to provide certain information to the bond holder, or limitations on the behavior of the issuer. Bonds are generally issued for a fixed term (the maturity) longer than ten years. U.S Treasury securities issued debt with life of ten years or more is a bond. New debt between one year and ten years is a note, and new debt less than a year is a bill. Finance studies and addresses the ways in which individuals, businesses, and organizations raise, allocate, and use monetary resources over time, taking into account the risks entailed in their projects. ... For other uses, see Debt (disambiguation). ... For security (collateral), the legal right given to a creditor by a borrower, see security interest A security is a fungible, negotiable interest representing financial value. ... See also Coupon for other meanings of the same word In finance, coupons are attached to bonds, either physically (as with old bonds) or electronically. ... Maturity refers to the final payment date of a loan or other financial instrument, after which point no further interest or principal need be paid. ... Look up bill in Wiktionary, the free dictionary. ...

A bond is simply a loan, but in the form of a security, although terminology used is rather different. The issuer is equivalent to the borrower, the bond holder to the lender, and the coupon to the interest. Bonds enable the issuer to finance long-term investments with external funds. Certificates of deposit (CDs) or commercial paper are considered money market instruments. A loan is a type of debt. ... Invest redirects here. ... A certificate of deposit or CD is, in the United States, a time deposit, a familiar financial product, commonly offered to consumers by banks, thrift institutions, and credit unions. ... Commercial paper is a money market security issued by large banks and corporations. ... A money market is a financial market for short-term borrowing and lending, typically up to thirteen months. ...

Traditionally, the U.S. Treasury uses the word bond only for their issues with a maturity longer than ten years, and calls issues between one and ten year notes. Elsewhere in the market this distinction has disappeared, and both bonds and notes are used irrespective of the maturity. Market participants normally use bonds for large issues offered to a wide public, and notes for smaller issues originally sold to a limited number of investors. There are no clear demarcations. There are also "bills" which usually denote fixed income securities with three years or less, from the issue date, to maturity. Bonds have the highest risk, notes are the second highest risk, and bills have the least risk. This is due to a statistical measure called duration, where lower durations have less risk, and are associated with shorter term obligations. The United States Department of the Treasury is a Cabinet department, a treasury, of the United States government established by an Act of U.S. Congress in 1789 to manage the revenue of the United States government. ... In economics and finance, duration is the weighted average maturity of a bonds cash flows or of any series of linked cash flows. ...

Bonds and stocks are both securities, but the difference is that stock holders own a part of the issuing company (have an equity stake), whereas bond holders are in essence lenders to the issuer. Also 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.e. bond with no maturity). It has been suggested that shareholder be merged into this article or section. ... For security (collateral), the legal right given to a creditor by a borrower, see security interest A security is a fungible, negotiable interest representing financial value. ... The Court of Chancery, London, early 19th century This article is about the concept of equity in the jurisprudence of common law countries. ... Consols is a British government bond (gilt), dating originally from the 18th century. ... A perpetuity is an annuity in which the periodic payments begin on a fixed date and continue indefinitely. ...

Issuers

The range of issuers of bonds is very large. Almost any organization could issue bonds, but the underwriting and legal costs can be prohibitive. Regulations to issue bonds are very strict. Issuers are often classified as follows:

• Supranational agencies, such as the European Investment Bank or the Asian Development Bank issue supranational bonds.
• National Governments issue government bonds in their own currency. They also issue sovereign bonds in foreign currencies.
• Sub-sovereign, provincial, state or local authorities (municipalities). In the U.S. state and local government bonds are known as municipal bonds.
• Government sponsored entities. In the U.S., examples include the Federal Home Loan Mortgage Corporation (Freddie Mac), the Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Banks. The bonds of these entities are known as agency bonds, or agencies.
• Companies (corporates) issue corporate bonds.
• Special purpose vehicles are companies set up for the sole purpose of containing assets against which bonds are issued, often called asset-backed securities.

The European Investment Bank (the Banque Européenne dInvestissement) is the European Unions financing institution and was established under the Treaty of Rome (1957) to provide loan finance for capital investment furthering European Union policy objectives, in particular regional development, Trans-European Networks of transport, telecommunications and energy... The Asian Development Bank (ADB) is a multilateral development finance institution dedicated to reducing poverty in Asia and the Pacific. ... Government debt (public debt, national debt) is money owed by government, at any level (central government, federal government, national government, municipal government, local government, regional government). ... A sovereign bond is a bond issued by a national government as opposed to a municipal bond which is issued by a subdivision of a national government. ... In the United States, a municipal bond or muni is a bond issued by a state, city or other local government, or their agencies. ... The government sponsored enterprises (GSEs) are a group of financial services corporations created by the United States Congress. ... The Federal Home Loan Mortgage Corporation (Freddie Mac) NYSE: FRE, a government sponsored enterprise, is a stockholder-owned, publicly-traded company chartered by the United States federal government in 1970 to purchase mortgages and related securities, and then issue securities and bonds in financial markets backed by those mortgages in... The Federal National Mortgage Association (FNMA; NYSE: FNM), commonly known as Fannie Mae, is a corporation sponsored by the United States Government. ... The Federal Home Loan Banks are an essential source of stable, low-cost funds to financial institutions for home mortgage, small business, rural and agricultural loans. ... A Corporate bond is a bond issued by a corporation, as the name suggests. ... Asset-backed securities are a type of bond that is based on pools of assets. ...

Issuing bonds

Bonds are issued by public authorities, credit institutions, companies and supranational institutions in the primary markets. 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. The primary market is the financial market for the initial issue and placement of securities. ...

Features of bonds

The most important features of a bond are:

• nominal, principal or face amount—the amount over 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. 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. 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 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. 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. 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 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. 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.
  • puttability—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.
  • call dates and put dates—the dates on which callable and puttable bonds can be redeemed early. 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.

• exchangeable bond allows for exchange to shares of a corporation other than the issuer.

2005 (MMV) was a common year starting on Saturday of the Gregorian calendar. ... The Greek name for the rainy, stormy southeast wind. ... See also Coupon for other meanings of the same word In finance, coupons are attached to bonds, either physically (as with old bonds) or electronically. ... LIBOR stands for the London Interbank Offered Rate and is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the London wholesale (or interbank) money market. ... An option contract is an agreement in which the buyer (holder) has the right (but not the obligation) to exercise by buying or selling an asset at a set price (strike price) on (European style option) or before (American style option) a future date (the exercise date or expiration); and... A call option is a financial contract between two parties, the buyer and the seller of this type of option. ... A callable bond (redeemable bond) is a bond that can be redeemed by the issuer prior to its maturity. ... Par value has several meanings depending on the context, whether used in the equities market, or in the bond markets, and partially also dependent on where in the world the par value term is used. ... A put option (sometimes simply called a put) is a financial contract between two parties, the buyer and the writer of the option. ... 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 be exercised. ...

Types of bond

• Fixed rate bonds have a coupon that remains constant throughout the life of the bond.

• 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 +0.20%. 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. As these bonds are relatively risky, investors expect to earn a higher yield. These bonds are also called junk bonds.

• Zero coupon bonds do not pay any interest. They trade at a substantial discount from par 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. 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. 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. Treasury Inflation-Protected Securities (TIPS) and I-bonds are examples of inflation linked bonds issued by the U.S. government.

• Other indexed bonds, for example Equity Linked Notes and bonds indexed on a business indicator (income, added value) or on a country GDP...

• Asset-backed securities are bonds whose interest and principal payments are backed by underlying cash flows from other assets. Examples of asset-backed securities are mortgage-backed securities (MBS's), collateralized mortgage obligations (CMOs) and collateralized debt obligations (CDOs).

• Subordinated bonds are those that have a lower priority than other bonds of the issuer in case of liquidation. In case of bankruptcy, there is a hierarchy of creditors. First the liquidator is paid, then government taxes, etc. 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. The senior tranches get paid back first, the subordinated tranches later.

• Perpetual bonds are also often called perpetuities. 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. 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]

• 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.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.

• 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. 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.

In finance, a Fixed rate bond is a security issued by a government or a business corporation that pays a fixed amount of interest (coupon rate) on the face value (principal/par value) of the bond periodically (often every six months or annually) to the owner until a date certain... 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 spread. ... LIBOR stands for the London Interbank Offered Rate and is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the London wholesale (or interbank) money market. ... Euribor (Euro Interbank Offered Rate) is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the euro wholesale (or interbank) money market. ... High yield debt (non-investment grade or junk bond) is a business term referring to a corporate debt instrument, usually a bond, that has a higher yield (compared to investment grade debt) because of a high perceived credit risk (default risk). ... A credit rating agency, credit reporting agency (CRA), or credit bureau (US), or credit reference agency (UK) is a company that assigns credit ratings for corporations and individuals. ... High yield debt (non-investment grade or junk bond) is a business term referring to a corporate debt instrument, usually a bond, that has a higher yield (compared to investment grade debt) because of a high perceived credit risk (default risk). ... Zero coupon bonds are bonds which do not pay periodic coupons, or so-called interest payments. ... Par value has several meanings depending on the context, whether used in the equities market, or in the bond markets, and partially also dependent on where in the world the par value term is used. ... Zero coupon bonds are bonds which do not pay periodic coupons, or so-called interest payments. ... Inflation-indexed bonds (also known as linkers) are bonds whose principal are indexed to inflation, cutting out inflation risk. ... The agencies responsible for the government of the United Kingdom consist of a number of ministerial departments (usually headed by a Secretary of State) and non-ministerial departments headed by senior civil servants. ... Gilts are bonds issued by the UK Government. ... The 1980s refers to the years of 1980 to 1989. ... Treasury Securities are bonds issued by the U.S. Treasury. ... An Equity Linked Note (ELN) is a debt instrument, usually a bond, that differs from a standard fixed-income security in that the final payout is based on the return of the underlying equity, which can be a single stock, basket of stocks or an equity index. ... Asset-backed securities are bonds backed by a pool of financial assets that cannot easily be traded in their existing form. ... 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 mortgages. ... A Collateralized Mortgage Obligation (CMO) is a type of Mortgage Backed Security, which has been divided up into tranches. ... Collateralized debt obligations (CDOs) are a type of asset-backed security or structured finance product. ... A Subordinated bond is a bond that has a lower priority than other bonds of the issuer in case of liquidation during bankruptcy. ... Liquidation, or winding up, refers to a business whose assets are converted to money in order to pay off debt. ... 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 of the company and settling all claims against the company before putting the company into dissolution. ... The word tranche is French for slice. ... A bond with no maturity date. ... A perpetuity is an annuity in which the periodic payments begin on a fixed date and continue indefinitely. ... Year 1888 (MDCCCLXXXVIII) was a leap year starting on Sunday (click on link for calendar) of the Gregorian calendar (or a leap year starting on Tuesday of the 12-day slower Julian calendar). ... A bearer bond or bearer security is a certificate that represents a bond obligation of, or stock in, a corporation or other intangible property. ... A bearer bond or bearer security is a certificate that represents a bond obligation of, or stock in, a corporation or other intangible property. ... In the United States, a municipal bond or muni is a bond issued by a state, city or other local government, or their agencies. ... 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. ... An income tax is a tax levied on the financial income of persons, corporations, or other legal entities. ... This article or section does not cite its references or sources. ...

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. Some foreign issuer bonds are called by their nicknames, such as the "Samurai bond", but this is ironic in that the issuer is neither a samurai nor even Japanese. Japanese samurai in armour, 1860s. ...

• Eurodollar bond is a bond issued by a non-European entity in the European market in Euro-dollar denominations.
• Samurai bond is a bond issued by a non-Japanese entity in the Japanese market in Japanese Yen denominations.
• Yankee bond is a bond issued by a non-US entity in the US market in US Dollar denominations.

Trading and valuing bonds

See also Bond valuation Bond valuation is the process of determining the fair price of a bond. ...

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.

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. 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. 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. T-Bill, are always issued at a discount, and pay par amount at maturity rather than paying coupons. 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. 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 present value of a single or multiple future payments (known as cash flows) is the nominal amounts of money to change hands at some future date, discounted to account for the time value of money, and other factors such as investment risk. ... Yield may mean: In economics, yield is a measure of the amount of income an investment generates over time (related to return on investment). ... It has been suggested that Rate of return on investment be merged into this article or section. ...

The market price of a bond may include the accrued interest since the last coupon date. (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". (See also Accrual bond.) The price excluding accrued interest is sometimes known as the Clean price. 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 study of microeconomics. ... In finance, accrued interest is the interest that has accumulated since the principal investment, or since the previous interest payment if there has been one already. ... Dirty Price A bond price that includes accrued interest. ... 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 quoted for a bond excluding accrued interest. ...

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).

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. In [[finance]], a capital gain is profit that results from the appreciation of a capital asset from its purchase price. ... To meet Wikipedias quality standards, this article may require cleanup. ... Yield may mean: In economics, yield is a measure of the amount of income an investment generates over time (related to return on investment). ...

The relationship between yield and maturity for otherwise identical bonds is called a yield curve. The US dollar yield curve as of 9 February 2005. ...

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.S., Japan and western Europe, bonds trade in decentralized, dealer-based over-the-counter markets. In such a market, market liquidity is provided by dealers and other market participants committing risk capital to trading activity. 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. 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. The bond market, also known as the debit, credit, or fixed income market, is a financial market where participants buy and sell debt securities usually in the form of bonds. ... Over-the-counter (OTC) trading is to trade financial instruments such as stocks, bonds, or derivatives directly between two parties. ... Market liquidity is a business or economics term that refers to the ability to quickly buy or sell a particular item without causing a significant movement in the price. ...

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 is the difference between the buying (bid) and selling (offer) price of the same stock or currency transaction. ...

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. Still, in the U.S., nearly ten percent of all bonds outstanding are held directly by households. A bond fund is a fund that invests in bonds. ...

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. 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. 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, whereas the company's stock often ends up valueless. However, bonds can be risky: It has been suggested that shareholder be merged into this article or section. ... // This article is about corporate dividends. ... Notice of closure stuck on the door of a computer store the day after its parent company, Granville Technology Group Ltd, declared bankruptcy (strictly, put into administration - see text) in the UK. Bankruptcy is a legally declared inability or impairment of ability of a individuals or organizations to pay their...

• Fixed rate bonds are subject to interest rate risk, meaning their market price will decrease in value when the generally prevailing interest rate rises. 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. 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.

However, price changes in a bond immediately affect mutual funds that hold these 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. 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. Efforts to control this risk are called immunization or hedging. Interest rate risk is the risk that the relative value of a security, especially a bond, will worsen due to an interest rate increase. ... 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 study of microeconomics. ... A mutual fund is a form of collective investment that pools money from many investors and invests their money in stocks, bonds, short-term money market instruments, and/or other securities. ... In economics, mark to market is the act of assigning a value to a position held in a tradeable financial instrument based on the current market price for that instrument. ... In finance, a portfolio is a collection of investments held by an institution or a private individual. ... In economics and finance, bond duration is the weighted average maturity of a bond or series of cash flows received. ... In finance, interest rate immunization is a strategy that insures that a change in interest rates will not affect the value of a portfolio. ... It has been suggested that this article or section be merged into Hedge (finance). ...

• 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 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. Under the laws of the United States and many other countries, 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 35.7 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. A credit rating agency, credit reporting agency (CRA), or credit bureau (US), or credit reference agency (UK) is a company that assigns credit ratings for corporations and individuals. ... Publications Standard & Poors publishes a weekly (48 times a year) stock market analysis newsletter called The Outlook, which is issued both in print and online to subscribers. ... Moodys Corporation (NYSE: MCO) is the holding company for Moodys Investors Service which performs financial research and analysis on commercial and government entities. ... Bankruptcy is a legally declared inability or impairment of ability of an individual or organization to pay their creditors. ... Chapter 11 of the Bankruptcy Code governs the process of reorganization under the bankruptcy laws of the United States. ... For a time, WorldCom (WCOM) was the United States second largest long distance phone company (AT&T was the largest). ... 2004 (MMIV) was a leap year starting on Thursday of the Gregorian calendar. ...

• 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

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. The most common American benchmarks are the Lehman Aggregate, Citigroup BIG and Merrill Lynch Domestic Master. 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. The S&P 500 is an index containing the stocks of 500 Large-Cap corporations, most of which are American. ... The Russell Indexes (note that Russell uses Indexes rather than Indices) are a set of stock market indices of listed U.S. companies. ... The stocks are a device used since medieval times for public humiliation, corporal punishment, and torture. ... The Lehman U.S. Aggregate (better known simply as the Lehman Aggregate or The Agg) is a common American bond index, akin to the S&P 500 for stocks, owned by Lehman Brothers. ... The Salomon Broad Investment Grade Index (known as the Salomon BIG or Citigroup BIG) is a common American bond index, akin to the S&P 500 for stocks, originally owned by Salomon Brothers and now run by its successor, Citigroup. ... The Merrill Lynch Domestic Master is a common American Bond index, analogous to the S&P 500 for stocks, owned by Merrill Lynch. ...

See also

• Bond market
• Bond fund
• 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

The bond market, also known as the debit, credit, or fixed income market, is a financial market where participants buy and sell debt securities usually in the form of bonds. ... A bond fund is a fund that invests in bonds. ... Brady bonds are Dollar denominated bonds, named after U.S. Treasury Secretary Nicholas Brady Bonds, traded on the international bond market, allowing emerging countries to transform nonperforming debt into Brady bonds. ... A Eurobond is a bond that has been issued in one countrys currency but is traded outside of that country and in a different monetary system. ... In investment, the credit rating assesses the credit worthiness of a corporation. ... A collective action clause (CAC) allows a supermajority of bondholders to agree a debt restructuring that is legally binding on all holders of the bond, including those who vote against the restructuring. ... fuck fuck fuck you!!!!!! This article is about criticism of, and arguments against debt. ... A debenture in finance, is a long term debt instrument used by governments and large companies to obtain funds. ... Fixed income refers to any type of investment that yields a regular (fixed) payment. ... In finance, interest rate immunization is a strategy that insures that a change in interest rates will not affect the value of a portfolio. ... This is a list of topics which are relevant to Accountancy. ... This aims to be a complete list of the articles on economics. ... What follows is a list of over 250 Wikipedia articles on finance topics. ...

References

1. ^ Eason, Yla (June 6, 1983). "Final Surge in Bearer Bonds" New York Times.
2. ^ Quint, Michael (August 14, 1984). "Elements in Bearer Bond Issue". New York Times.
3. ^ no byline (July 18, 1984). "Book Entry Bonds Popular". New York Times.

External links

• The Bond Market Association
• Bonds 101, bonds.yahoo.com
• Bond Glossary, bonds.yahoo.com
• UK Debt Management Office
• German Finance Agency
• MoneyWeek Magazine - Investing in Bonds
• Investor education site sponsored by The Bond Market Association
• Bond Pricing@investopedia