Etymology[ edit ] In Englishthe word " bond " relates to the etymology of "bind".
Etymology[ edit ] In Englishthe word " bond " relates to the etymology of "bind". In the sense "instrument binding one to pay a sum to another", use of the word "bond" dates from at least the s. The most common process for issuing bonds is through underwriting. When a bond issue is underwritten, one or more securities firms or banks, forming a syndicatebuy the entire issue of bonds from the issuer and re-sell them to investors.
The security firm takes the risk of being unable to sell on the issue to end investors. Primary issuance is arranged by bookrunners who arrange the bond issue, have direct contact with investors and act as advisers to the bond issuer in terms of timing and price of the bond issue.
The bookrunner is listed first among all underwriters participating in the issuance in the tombstone ads commonly used to announce bonds to About bond issue public. In contrast, government bonds are usually issued in an auction. In some cases, both members of the public and banks may bid for bonds.
In other cases, only market makers may bid for bonds. The overall rate of return on the bond depends on both the terms of the bond and the price paid. In the case of an underwritten bond, the underwriters will charge a fee for underwriting. An alternative process for bond issuance, which is commonly used for smaller issues and avoids this cost, is the private placement bond.
Bonds sold directly to buyers may not be tradeable in the bond market. This was called a tap issue or bond tap. Treasury Bond Nominal, principal, par, or face amount is the amount on which the issuer pays interest, and which, most commonly, has to be repaid at the end of the term.
Some structured bonds can have a redemption amount which is different from the face amount and can be linked to the performance of particular assets. Maturity[ edit ] The issuer has to repay the nominal amount on the maturity date. As long as all due payments have been made, the issuer has no further 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 30 years. Some bonds have been issued with terms of 50 years or more, and historically there have been some issues with no maturity date irredeemable. In the market for United States Treasury securities, there are three categories of bond maturities: Coupon[ edit ] The coupon is the interest rate that the issuer pays to the holder.
Usually this rate is fixed throughout the life of the bond. The name "coupon" arose because in the past, paper bond certificates were issued which had coupons attached to them, one for each interest payment. On the due dates the bondholder would hand in the coupon to a bank in exchange for the interest payment.
Interest can be paid at different frequencies: Yield[ edit ] The yield is the rate of return received from investing in the bond.
It usually refers either to The current yieldor running yield, which is simply the annual interest payment divided by the current market price of the bond often the clean price. The yield to maturityor redemption yield, which is a more useful measure of the return of the bond.
This takes into account the current market price, and the amount and timing of all remaining coupon payments and of the repayment due on maturity. It is equivalent to the internal rate of return of a bond.
Credit quality[ edit ] The quality of the issue refers to the probability that the bondholders will receive the amounts promised at the due dates.
This will depend on a wide range of factors. High-yield bonds are bonds that are rated below investment grade by the credit rating agencies. As these bonds are riskier than investment grade bonds, investors expect to earn a higher yield. These bonds are also called junk bonds.
Market price[ edit ] The market price of a tradable bond will be influenced, amongst other factors, by the amounts, currency and timing of the interest payments and capital repayment due, the quality of the bond, and the available redemption yield of other comparable bonds which can be traded in the markets.
The price can be quoted as clean or dirty.
The net proceeds that the issuer receives are thus the issue price, less issuance fees. The market price of the bond will vary over its life: Others[ edit ] Indentures and Covenants — An indenture is a formal debt agreement that establishes the terms of a bond issue, while covenants are the clauses of such an agreement.
Covenants specify the rights of bondholders and the duties of issuers, such as actions that the issuer is obligated to perform or is prohibited from performing.Issue price is the price at which the bond issuer originally sells the bonds. Two features of a bond – credit quality and time to maturity – are the principal determinants of a bond's coupon rate.
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Advantages of bond issue for companies Some practices that increase mobility are provided in the notification so that bonds are more attractive both for the issuing and for the disposal parties. Bonds can be repaid prematurely, which is an application that protects issuing and investing parties against changing market conditions.
Definition of bond issue: A debt instrument issued by government agencies or corporations to raise money. The issuer must pay a fixed amount each year. Moving Forward Bond Issue Voters Approve Four Propositions for Quality of Life Projects in MWC To fund needed improvements in our community, the Midwest City Council unanimously approved a resolution calling for a Special Election for citizens to vote on four propositions.