Bond Basics | Different Types of Bonds Explained

January 7, 2021
Bond Basics | Different Types of Bonds Explained

A bond is a type of investment that represents a loan between a borrower and a lender. With bonds, the issuer promises to make regular interest payments to the investor at a specified rate (the coupon rate) on the amount it has borrowed (the face amount) until a specified date (the maturity date). Once the bond matures, the interest payments stop and the issuer is required to repay the face amount of the principal to the investor

Types of Bonds

Because the interest payments are made generally at set periods of time and are fairly predictable, bonds are often called fixed-income securities.

  • Fixed Rate Bonds
  • Floating Rate Bonds
  • Zero Interest Rate Bonds
  • Inflation Linked Bonds
  • Perpetual Bonds
  • Bearer Bonds
  • Climate Bonds
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Fixed Rate Bond

A fixed rate bond is a type of debt instrument bond with a fixed coupon rate. It pays the same level of interest over its entire term.

Floating Rate Bond

The Floating Rate Bonds have a variable rate of interest. They take advantage of the fluctuation in interest rates to generate quality returns for investors. These types of Bond are generally linked to a benchmark

Zero Interest Rate Bonds

A zero-coupon bond is a bond do not pay interest during the life of the bonds. These bonds trades at a discounted price, rendering a profit at maturity, when the bond is redeemed for its full face value

Inflation Linked Bonds

Inflation linked bondsĀ  are bonds that guarantee a return higher than the rate of inflation. They are generally linked to particular inflation index.

Perpetual Bonds

Perpetual bond is a bond with no maturity date. It pays interest to investor forever. As long as the perpetual bond owner holds the bond(s), they will continue to receive interest. T his makes perpetual bonds similar in nature to equity investments that pay dividends, rather than fixed-income or debt investments

Bearer Bond

A bearer bond is a type of bond issued by a company, a corporation, or government for which there are no records maintained about the ownership of the instrument, and whoever has the custody of the instrument is the owner of the instrument

Climate Bond

Climate bonds are fixed-income financial instruments (bonds ) linked to climate change solutions. They are issued in order to raise finance for climate change solutions

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