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Government savings bonds, which have special features and are not normally marketable, are often confused with regular bonds. Government savings bonds tend to be cashable with the principal fully guaranteed by the issuer. These bonds are traditionally sold through banks. There are no coupons. Discounting is not meaningful because both the principal and accrued interest tend to be payable on demand under certain conditions. The bonds are often available at fixed or variable interest rates. The denominations tend to be small. A Canada Savings Bond may be purchased for as little as $100.
Although there are some exceptions, marketable bonds sold through dealers generally have fixed yields. What fluctuates is the market price, which changes the effective yield. A popular denomination is $1,000 although some dealers might have a higher minimum such as $5,000.
Could someone write some stuff regarding MTN's.
this is very big topic i cant tell now... — Preceding unsigned comment added by 121.58.175.8 (talk) 18:48, 14 December 2013 (UTC)
Is the fair value of a bond the Dirty or the Clean price?
Fair Market Value is an equity definition. Debt has a well-known fair value called Present Value. The uncertainty lies in the Future Value which will be affected by changes in interest rates. --JergenJones (talk) 14:16, 8 October 2013 (UTC)
Is there a difference between the par value of a bond and its principal?
Actually principal is often used to refer to the amortized amount. So if you have a bond that doesn't amortize, Par=Principal, the principal is always the same as the original face value of the bond. But for bonds that can be paid down: Par stays the same (original face value), principal can be paid down (current face value becomes lower than par). When you carry an amortizing bond (like a capitalized lease, or a car payment) on financial statements, you show it's current value as principal+interest owed. This is NOT the same as the present value of the bond which is (price*.01*principal)+accrued interest. tristanreid
Can anyone explain what exactly is meant by the phrase "spreads on corporate bonds"? MartinC
Sure, Martin. Here's an answer, then a more thorough explanation:
Brief answer-The spread is the yield on the corporate bond minus the yield on a similar treasury bond. Bond traders don't want to memorize or figure out what an appropriate yield would be when they trade corporate bonds or different maturities and coupons. It's much easier to just say how close the corporate bond is to a similar treasury bond. The difference between the two is called the spread, and is a measure of the credit risk associated with the corporation that issued the bond.
Longer explanation with the details spelled out-The prices of bonds are determined by how much people are willing to pay for them. The reason that not everyone just goes for the bond with the highest yield is that some bonds are more risky than others. Generally this trade-off gives a direct a risk/return relationship, the more risk on the bond, the more it has to yield for people to buy it, so the cheaper it will be to buy it. All bonds are sensitive to interest rates. So if you have a treasury bond you are mainly exposed to interest rate and reinvestment risk. Treasury bonds are generally considered the safest kind of bond, so there is no credit risk. If you invest in a corporate bond that has the same type of characteristics (maturity, coupon) of a treasury bond, you can assume it has the same amount of interest rate and reinvestment risk, plus some amount (a 'spread') of credit risk. Tristanreid 16:04, 19 May 2005 (UTC)
I’ve made many amendments to this entry. In fact, I have almost rewritten two main paragraphs. Apart from the fact that certain parts were just wrong, vague or only US focussed, my main problem with this article is that it does not differentiate between what is important, and what are details. Certain discriptions, such as that of high yield bonds, were very long, and belong more in a specific entry. Also, all the information about asset backed securities, should not be given in a general bond entry.
Most of the ‘bond’ entry is still just a list of characteristics and classifications. I believe that these should be kept as brief as possible. Instead, more information should be given on how issuance and trading work, who the players are, what the risks are, etc.
I have not changed anything in the second half. Instead of the slightly confusing story that is there now, my suggestion would be to write paragraphs on:
Please let me know what you think.
The page would also benefit greatly from more data – how much bonds were issued, per type etc. At the moment someone who does not know anything about bonds might get the impression that Perpetuals are as common as FRN’s.
In general, the fixed income pages are a bit of a mess (yes, bonds should fall under fixed income). It seems a lot of work to clean it up. Any suggestions?
Phew, my first update in Wikipedia and already such a long story… Apologies.
What is the proper accounting for this security?
Hey, in the future, try to sign your questions. It's just a wikipedia etiquette thing, no big deal. You can automatically generate a sig by putting 4 tildes in a row. A tilde is the ~ symbol. So to answer your question: How do you mean account? A PIK is a bond where the coupons are paid in either cash or in more bonds (In Kind). If you're wondering how it looks on the financial statements, I'm pretty sure the balance sheet looks the same at first, and each in kind payment increments the marketable securities instead of cash. I don't think there's a difference on the income statement, it probably just goes under interest income, because marketable securities are cash equivalent anyway. Tristanreid 16:15, 13 January 2006 (UTC)
I think people could be meaning a lot of things by the word "bond", so Bond (disambiguation) should be moved here and this article moved to Bond (finance). -- King of Hearts talk 04:00, 28 March 2006 (UTC)
Disagree Debenture has a very specific meaning in the United Kingdom in relation to the issuing of debentures to finance arts and sports venues, and in terms of debenture holders (eg for Wimbledon, Wembley Stadium and the Royal Albert Hall) who get tickets and other privileges (the Google search for debenture ticket gets 85,000 results [1]). This meaning is simply not covered by Bond (finance), and I certainly wouldn't think of looking there for information about it. Humansdorpie 09:05, 28 April 2006 (UTC)
According to the Debenture page, govenments can issue debentures. Can anyone tell me whats the difference between a government issued bond and a government issued debenture? 203.173.143.182 20:13, 18 May 2006 (UTC)
"Zero coupon bonds do not pay any interest. They trade at a substantial discount from par. The bond holder receives the full principal amount as well as the accrued interest on the maturity date." If they don't pay any interest - what accrued interest ? -- Beardo 04:29, 12 June 2006 (UTC)
They don't pay interest, but they accrue value toward their principal amount. Any time prior to redemption, you can refer to the amount that has accrued thus far as 'accrued interest', or 'accretion value'. It's also not really industry standard to call the final date the 'maturity date'. It's usually called the 'redemption date'. I think referring to the maturity date in the article is an attempt to avoid confusing readers with too much dissimilar jargon, and it's not technically incorrect. I'm changing the article to say "The bond holder receives the full principal amount as well as value that has accrued on the redemption date." If you prefer a different phrasing, please have at it. Tristanreid 23:47, 12 June 2006 (UTC)
Redemption/Maturity date are interchangeable tho' "maturity date" is far more widely used. Note that you should never use the phrase "accrued interest" in the context of a zero coupon bond, there are subtle but important (to a bond trader anyway!) differences in considering a zero-coupon as a "zero coupon bond" or as a "single coupon paid at maturity" bond.
The theoretical price of a zero-coupon bond is the net present value of it's redemtion amount, there is no such concept of the "value that has accrued".
Why aren't convertible bonds mentioned in this article?
I added convertible and exchangeable bonds -- Argyn
I don't see the description of auction process at both Treasury and the secondary markets. Technical details of bond trading are not covered yet. --Argyn
In the see also section the links to Baby Bonds, Bond Market in India, and Senior Bonds all take you to "article not found" pages in wikipedia. I would delete them myself but am new and not comfortable doing so. Can someone else either delete or fix them? Thanks!
This information was pretty tangential to the general topic of bonds, and was also taken verbatim from the Treasury bonds page. It also upset the flow of the paragraph into which it had been inserted. For these reasons, I removed it. Someone may be interested to note that the intro is still a little garbled - especially in its multiple definitions of the term "bill".
Joachim Heck 20:34, 7 November 2006 (UTC)
It says:
The issuer is equivalent to the borrower, the bond holder to the lender, and the coupon to the interest.
But the way I read it, the bond holder would be the borrower, and the issuer would be the lender. Isn't that right? Or have I misunderstood? Please delete this whole section when resolved either way. —Preceding unsigned comment added by Oidara (talk • contribs) 11:09, 19 December 2007 (UTC)
Gee, it would be nice to know what "tenor" means in this context. Is it perchance anything like tenure?
The reason I ask is that I got here on a redirect when I tried to look up tenor upon seeing another article (Duration) use it with no definition and no link. So I find that this article contains zero uses of the word apart from the redirect note I get at the top.
OK, I'll Google it. But it would still be nice to find it here without plowing through every Domingo and Caruso on the WWW. Or, maybe I should just delete that disambiguation reference? Dandrake (talk) 05:17, 22 September 2008 (UTC)
I think Tenor should be added as a seperate article, they arent peculiar to Bonds. Being used in yield curves and Fx forward curves, swaps etc. The notations could use broken dates such as 20140711 or more genrally notations like 3Y, 1W, 3Y3M or even TN (Tomorrow Next) O\N (Overnight) SPOT. All of the non broken dates should really be interpreted relative to a calendar or for an FXrate a pair of calendars. While SPOT also needs to now the settlement period for the instrument eg T+3 instrument. Also you may need to consider exchange times SPOT of T+3 would be different at 15:00 when the market is open and at 21:00 when it is shut. — Preceding unsigned comment added by 141.228.106.147 (talk) 13:51, 11 July 2014 (UTC)
It would be good to note that pricing a bond is not relevant if the holder plans to hold the bond until maturity. Sure the market price fluctuates but the value of the bond to the bondholder remains constant -- except for reinvestment rate risk. —Preceding unsigned comment added by 67.212.30.238 (talk) 03:45, 20 April 2009 (UTC) However a significant drop in the price could indicate substantial credit risk and hence the risk that the bond may default prior to maturity. —Preceding unsigned comment added by 80.70.48.19 (talk) 09:40, 30 July 2009 (UTC)
Any thoughts about adding some information regarding Church bonds? Surv1v4l1st (Talk|Contribs) 01:34, 27 April 2009 (UTC)
In the intro it says "the authorized issuer owes the holders a debt". Does this really mean that the issuer must at some future time give the holder a debt, such that at that time some third party would then owe the holder money? Or should this simply say "the authorized issuer owes the holders money"? In other contexts, redundancies like "cold temperature" aren't confusing, but in finance the above situation could easily occur, so the wording becomes critical. Thanks. 72.48.98.26 (talk) 05:42, 28 June 2009 (UTC)
We need a new section of this article called 'History' or 'History of Bonds'. —Preceding unsigned comment added by 174.55.220.166 (talk) 00:25, 17 July 2010 (UTC)
Complete newbie, failed to find any reference to the way 'bond' is used in the UK (and elsewhere?).
Man in street thinks of it as a term deposit with a bank or building society, not as a marketable security - although man with stockbroker knows it to mean something completely different.
Does this deserve pointing out somewhere, or have I just missed it? 86.150.248.58 (talk) 15:15, 15 January 2012 (UTC)
What is the difference between bond and loan ?
Siyac 06:17, 22 September 2012 (UTC) — Preceding unsigned comment added by Siyac (talk • contribs)
Second paragraph currently (30 Jan. 2013) states: "in the case of government bonds, to finance current expenditure".
But I believe government-issued bonds can be issued to for debt accrued from previous expenditures: bonds can cover both the current deficit and existing debt (accrued from previous deficits). The page on U.S. Treasuries explicitly discusses Treasury bonds issued in this context.
Proposed edit: "in the case of government bonds, to finance current expenditure and to cover previously accrued debts." — Preceding unsigned comment added by 50.131.141.62 (talk) 18:12, 30 January 2013 (UTC)
I have read a lot of stuff about these new retail bonds, in the Financial Times and CFO insight for instance. I just added a short definition on this page, but I guess it would be interesting and probably content-rich to write a new page on wikipedia about retail bonds. If somebody feels like doing it, please let me know. — Preceding unsigned comment added by AggieKMA (talk • contribs) 13:10, 6 February 2013 (UTC)
On Mar 15th, th following was added: ″The bookrunner is listed first among all underwriters participating in the issuance in the tombstone ads commonly use to announce bonds to the public.″ The second half of the sentence seems a bit unclear, although it looks as if it's meant to express that ″ads are commonly used to announce ...″. Could this be re-phrased or corrected? 213.144.7.145 (talk) 13:50, 18 April 2013 (UTC)
Much of the writing in this section is not encyclopedic in tone. Use here of I and you does not conform to general wiki style. If there is no forthcoming comment, I will duly correct this within the month. Mashford42 (talk) 16:32, 15 April 2016 (UTC)
I added a sentence in the intro about absolute priority. I believe the topic of repayment priority of creditors and shareholders should have its own page. There currently is only a page on Creditor's rights.
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The last sentence ends with "... there are three categories of bond maturities:" but the following list has 4 items. Any explanation of this?
If not then I propose to replace three with four.
Nick the engineer (talk) 09:17, 22 March 2020 (UTC)
Bond 2402:3A80:194A:B1EB:0:0:0:2 (talk) 14:18, 25 November 2021 (UTC)
@Ehrenkrater: Greetings! I write to you today to explain why I reverted your edit to the yield to maturity language. It appears to me that your edit was aimed at making the language work for both YTM and redemption rate. Very well, but in doing so, you eliminated a key shortcoming of YTM: that it is based on a reinvestment rate assumption that in practice is unrealistic. This is a key point Liebowitz and Homer make in Inside the Yield Book. You also deleted my inline citation to a reliable source (Liebowitz and Homer). I'm a strong supporter of citations, and I'd hate to lose this one. It gives readers confidence that we're giving them info that's reliable and supported by experts. If you'd like to add a separate sentence that distinguishes the redemption yield from yield to maturity, perhaps that's a better way to do what I think you're trying to do here. Regards, BuzzWeiser196 (talk) 20:57, 5 December 2021 (UTC)
With due respect, that is complete rubbish.
First the practical position: As stated elsewhere in the article, at least in principle, institutions will invest to match their liabilities. They will attempt to match their assets and liabilities year by year, including both the interest receipts and the maturity proceeds. There is no reinvestment involved.
Second, the maths: the redemption yield (i) is defined so that the market value is equal to the sum of the future cash flows each discounted at rate i from the date of the cash flow back to the present. There is no reinvestment involved in this calculation.
Redemption yields are calculated by investors and quoted in the financial press because this is the most useful measure and the best way to compare different, but similar investment opportunities.
I agree that it might be possible to calculate a whole range of alternative measures using different formulae which allow in some way for reinvestment, but they are generally unhelpful, and it would be unnecessary and confusing to users if this is mentioned in the article.---Ehrenkater (talk) 22:18, 5 December 2021 (UTC)
OK, here is my response.
1 I agree that some investors (such as the categories you mention) do not have precise matching targets. The process they use to select bonds is rather vaguer. These kinds of investors therefore do not plan to require the money at any particular date, whether that date is the maturity date of the bond or any other date, and a fortiori they have absolutely no need to plan to reinvest the coupon payments up to the maturity date of the bond. The metric they are likely to use to compare different but similar bonds is the redemption yield, as this is simpler and doesn't require any arbitrary assumptions which are not relevant to their requirements. I would add further that insofar as a mutual fund will do any cash flow planning, it is likely to assume that there will be a steady flow of withdrawals by retail investors, and that the (relatively small) coupon payments will be more than covered by these withdrawals.
2 The statements you quote from your book appear to be factually correct, but they totally beg the question of whether reinvestment of the coupon payments is relevant or not. Does the book say anything about what category of investor they are thinking about, and why they need all the money on the maturity date of the bond?
3 I apologise for any inappropriate tone in my comments. I have no personal grudges, and my sole consideration here is that this is an important article and it is a shame if any user who is trying to learn about the subject is confused by false and irrelevant statements.
4 While I'm here: I was thinking about reorganising the list of types of bond to group them into categories, e.g. by type of issuer, by investment term etc. I think this would add to clarity. Do you have any objection to this?
Kind regards---Ehrenkater (talk) 13:16, 14 December 2021 (UTC)
When were bonds first utilized as a financial instrument? Michael Ten (talk) 07:35, 26 February 2022 (UTC)
I propose splitting the list of foreign currency bonds into its own article. It takes up quite a bit of space in the article which prevents us from describing bonds in a summary style and is somewhat out of scope due to its detail. A. C. Santacruz ⁂ Please ping me! 15:36, 30 March 2022 (UTC)
Bonds money goes to Lyda Bonds 2600:6C58:5E7F:937B:ED66:D2E5:69F7:22D9 (talk) 20:24, 23 May 2022 (UTC)
Someone is stealing my money. I have been through every job they have sold but said I was on a null Slav remove immediately. I have been stolen from now 2 times. I will not allow this to happen anymore 2600:6C58:5E7F:937B:ED66:D2E5:69F7:22D9 (talk) 20:26, 23 May 2022 (UTC)