Bonds
Bonds are securities representing a portion of the debt of an issuer, whether public entity, sovereign state, transnational entity, listed company or other legal entity. Issued for the purpose of raising funds, in the absence of extraordinary events at maturity they usually provide for the return of the nominal value of the bond. The investor has the possibility, if the bonds are listed, to liquidate their investment on the secondary market prior to maturity. Unlike loans, the holder of the bonds receives a regular income in the form of a coupon. Based on the parameters set during placement, the bonds can have coupons with a fixed or variable interest rate. Some types of bonds do not pay intermediate coupons and the remuneration for the investor is the difference between the purchase price and the amount that is returned at maturity. The Investor’s return is a function of several variables: on the one hand the amount of the coupon offered, on the other the difference between the purchase and the sale price of the bond. Another factor which affects bonds’ return is the credit rating of the issuer, which is the degree of solvency expressed as a rating assigned by specialised agencies. A high level of reliability corresponds to a higher rating and therefore the interest rate demanded by the market to finance the issuer is lower. The non-repayment of the bonds results in an issuer default and a loss for investor. In the case of currency bonds, which are denominated in a currency other than that of the domestic currency, the return to the investor is also affected by fluctuations in the exchange rate between its currency and the currency of the bond purchased.
For further information on the terms, you can consult the appropriate GLOSSARY