Bonds: Types of Bonds and Foreign Currencies

Bonds: Types of Bonds and Foreign Currencies

Bonds are fixed income tool that represents a loan made by a lender to a borrower (typically corporate or governmental). In addition, a bond could be thought of as an I.O.U. between the investor and borrower that includes the details of the loan and its payments.

Bonds word in wooden block on US Dollar bills.

Moreover, a bond has an end date when the principal of the loan is due to be paid to the bond owner and usually includes the terms for variable or fixed interest payments that will be made by the borrower.

Furthermore, bonds are using by companies, municipalities, states, and independent governments to finance projects and operations. Owners of bonds are debt holders, or creditors, of the issuer.

On the other hand, bonds and stocks are both safeties, but the major difference between the two is that stockholders have an equity stake in a company. Being a creditor, bondholders have priority over stockholders.

This means they will be paid in advance of stockholders, but will rank behind secured creditors, in the event of bankruptcy. Another difference is that bonds typically have a defined term, or maturity, after which bond is redeemed, while stocks usually remain outstanding indefinitely. An exception is an irredeemable bond, such as a consol, which is perpetuity, that is, a bond with no maturity.

See also: Bonds 101: Benefits and Risks You Should Know

Types of Bonds

Fixed rate bonds written in a note.

Fixed Rate Bond

Particularly, a fixed rate bond is a bond that pays the same amount of interest for its whole term. However, an investor who wants to earn a guaranteed interest rate for a specified term could buy a fixed rate Treasury bond, corporate bond or municipal bond.

Floating Rate Bond

Floating rate bond is a bond that have a variable coupon, the same to a money market reference rate, like LIBOR or federal funds rate, plus a quoted spread, for example, quoted margin. The spread is a rate that remains constant.

Zero-coupon Bond

In particular, a zero-coupon bond is a bond without coupon payments, purchase at a price lower than its face value, with the face value paid at the time of maturity.

High-yield Bond

To illustrate, a high-yield bond is a bond that rates below investment grade. Moreover, a high-yield bond is a high paying bond with a lower credit rating than investment-grade corporate bonds, Treasury bonds and municipal bonds.

See also: 11 High-Yield Investments Risk Takers Should Know

Convertible Bond words highlighted on the white background.

Convertible Bond

Particularly, convertible bond is a bond that let a bondholder exchange a bond to a number of shares of the issuer’s common stock.

Exchangeable Bond

Especially, exchangeable bond enables for exchange to shares of a corporation except the issuer.

Inflation-indexed Bond

As an illustration, inflation-indexed bond is a bonds issu the Self-governing, which provides the investor a constant return regardless of the level of inflation in the economy. Above all, the main objective of Inflation-indexed bonds is to provide a hedge and to protection the investor against macroeconomic risks in an economy.

See also: Inflation and Stocks Relationship

Asset-backed Securities

In particular, asset-backed securities are bonds whose interest and principal payments are backed by underlying cash flows from other assets.

Subordinated Bond

To illustrate, 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.

See also: Liquidity 101: A Quick Breakdown of What It means

Covered Bond

However, a covered bond is backed by cash flows from bank loan or public sector assets. In contradiction of asset-backed securities the assets for such bonds stay on the issuers’ balance sheet.

Perpetual Bond

Furthermore, a perpetual bond is a fixed income security without maturity date. One major disadvantage to these types of bonds is that they are not redeemable.

Bearer Bond

As a matter of fact, bearer bond is an official certificates issue without a named holder. In other words, the person who has the paper certificate can claim the value of the bond. Often they are register in a number to stop simulating, but may be traded like cash.

A Government Bond

Additionally, a government bond is a bond issued by a national government denominated in the nation’s domestic currency. Moreover, government bonds are sometimes consider as risk-free bonds because countrywide governments can raise taxes or decrease spending up to a certain point.

municipal bond word typed on a paper and pinned to a cork notice board.

Municipal Bond

Indeed, a Municipal bonds are loans investors make to local governments. They are issued by municipalities, states, regions, or other local governments. For that reason, the interest they pay on the bonds is usually tax-free. Also, Municipal bonds are securities.

Build America Bond

Not to mention, Build America Bond were taxable municipal bonds that featured tax credits and/or federal subsidies for bondholders and state and local government bond issuers.

Book-entry Bond

To illustrate, the “book-entry” form of ownership enables you to own securities with no a certificate. Furthermore, several terms often use interchangeably with “book entry” shares including “paperless share”, “electronic shares”, “digital shares”, “digital stock certificates”, and “uncertificated shares”.

Lottery Bond

In particular, a lottery bond is a type of government bond, most famously issued by the United Kingdom’s National Savings and Investment (NS&I). However, it gives the holder a chance to win a chance monthly drawing for a tax-free cash prize. The bonds do not pay interest, but they do encourage saving.

War Bond

On the other hand, war bond is debt securities issued by a government to finance military operations and other expenses in times of war.

Serial Bond

To illustrate, serial bond is financial bond that mature in installment over a period of time. In effect, a $100,000, 5-year serial bond would mature in a $20,000 annuity over a 5-year interval.  Nevertheless, bond issues consisting of a series of blocks of securities maturing in sequence, the coupon rate can be different.

Climate Bond

On the other hand, climate bond or green bond is fixed-income financial instruments connected in some way to climate change solutions.

Dual Currency Bond

Particularly, dual currency bond are the bonds for which money is raised in one currency, but redemption takes place in another. Further in a dual currency bond, the principal and coupon rate denominated in two different currencies.

Retail Bond

Indeed, retail bond is a type of corporate bond mostly intended for ordinary investors.

Social Impact Bond

In fact, social impact bond is a commissioning instrument that can enable organizations to deliver outcomes contracts. Furthermore, social impact bond makes funding for services conditional on achieving results.

Foreign Currencies

US Dollar versus Euro.

Eurodollar Bond

To illustrate a Eurodollar bond is a U.S.-dollar denominated bond issued by a foreign company and held in a foreign institution outside both the U.S. and the issuer’s home country. Moreover eurodollar bonds are a significant source of capital for international corporations and overseas governments.

Baklava Bond

As a matter of fact a Baklava bond is a bond name in Turkish Lira and issued by a national or foreign entity in Turkey. The name refers to baklava, a Turkish dessert.

Yankee Bond

A Yankee bond is a bond issued by a foreign equity, such as a bank or business, but is issued and traded in the United States and designated in U.S. dollars. Yankee bonds are governed by the Securities Act of 1933, which requires the bonds to be registered with the Securities and Exchange Commission (SEC).

Kangaroo Bond

A kangaroo bond is a type of foreign bond that is issued in the Australian market by non-Australian firms and is denominated in Australian currency. The bond is subject to the securities rules of Australia.

Maple Bond

A Maple Bond is a bond issued in the Canadian fixed income market in Canadian dollars by a foreign issuer. The elimination of the foreign property rules (FPR) in the early part of 2005 brought about important development in demand for foreign fixed income and Maple bond issuance.

Masala Bond

Masala bonds are bonds issued outside India but denominated in Indian Rupees, before the local currency. Furthermore, Masala is an Indian word and it means spices. The term is using by the International Finance Corporation (IFC) to evoke the culture and cuisine of India.

Samurai Bond

Samurai bonds are yen-name bonds issue in Japan by a foreign company. The bonds are subject to Japanese bond rules, attracting purchasers, for example, investors from Japan and provide capital to a foreign issuer.

Uridashi Bond

An Uridashi bond is a secondary offering of bonds outside Japan. They name in Yen or issued in a foreign currency.  These bonds are sold to Japanese domestic investors.

Shibosai Bond

A bond issued in yen to private investors outside Japan. That is, a shibosai bond, unlike other samurai bonds, is not offered to financial institutions.

Shogun Bond

A Samurai bond is similar to a shogun bond, but samurai bond is denominated in yen, while Shogun bonds are issued in foreign currency. Early in its history, the Shogun bond market was limited to multinational administrations and to foreign governments.

Bulldog Bond

Bulldog bond is a type of bond bought by purchasers interested in earning an income stream from the British pound or sterling. A bulldog bond is traded in the United Kingdom. If the income is used to reduce debt that is also in British pounds, the exchange rate risk is decreased.

Matrioshka Bond

The term matrioshka bond refers to an agreement issued in the Russian Federation, in Russian ruble, by a foreign bank or company.  Matrioshka bond is issued when a company wishes to increase capital from investors located in the Russian Federation.

Arirang Bond

An Arirang bond is a won-denominated bond issued by a foreign entity in South Korea. The name refers to “Arirang,” a Korean folk song. The market for Arirang bond is very small, constituting below 0.2% of company bond issuance in South Korea.

Kimchi Bond

A Kimchi bond is a non-won-denominated bond issued in the South Korean market. The name refers to kimchi, a Korean side dish. Woori Bank, which is credit with coining the term, defines it as exclusively referring to bonds from foreign issuers, a definition echoed by the Ministry of Finance and Economy.

Formosa Bond

A Formosa bond is a bond issued in Taiwan but denominate in a currency except the News Taiwan Dollar. They are issued by the Taiwan branches of publicity traded foreign financial institution and to be traded must have a credit rating of BBB or higher.

Panda Bond

The term panda bond refers to an agreement issued in China, in Chinese yuan, by a foreign bank or firm.  Panda bonds are issued when a company wishes to raise capital from investors located in China.

Dim Sum Bond

In particular, Dim sum bond is a bond denominate in Chinese yuan and issued in Hong Kong. However, Dim sum bond is attractive to foreign investors who desire exposure to yuan-denominated assets, but are restricted by China’s capital controls from investing in domestic Chinese debt.

Kungfu Bond

Kungfu bond, an offshore U.S. dollar-denominated bond issued by Chinese financial institutions and corporations.

Huaso Bond

The term huaso bond refers to a bond issued in Chile, in Chilean peso, by a foreign bank or company.  Huaso bond are issued when a company wishes to increase capital from investors located in Chile.

Lion City Bond

Lion City bond foreign currency denominated bond issued by foreign company in Singapore.

Komodo Bond

“Komodo” bond, the name by which worldwide Indonesian rupiah (IDR) bonds are referred, could help Indonesian State Owned Enterprises (SOEs) and corporates access big scale foreign investment with no foreign exchange currency risk.

See also: An Introduction to Currency Pairs

Conclusion

In other words, bonds are just like IOUs. Buying a bond means you are loaning out your money. It also name fixed-income securities because the cash flow from them is fixed. Stocks are equity; bonds are debt.

Furthermore, a bond is characterized by its face value, coupon rate, maturity, and issuer. When price goes up, yield goes down and vice versa. When interest rates increase, the prices of bonds in the market decrease and vice versa.

On the other hand, bonds are not risk free. It’s always possible–particularly for corporate bonds–for the borrower to default on the debt payments. High risk/high yield bonds are known as junk bonds.

You can buy most bonds through a brokerage or bank. Brokers often don’t charge a commission to purchase bonds but instead markup the price.

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