Bonds

Basics

• A legal “contract” to borrow from public markets
• Guaranteed periodic interest payments (coupon). Missed payments will force Bankruptcy.
• Guaranteed repayment of original sum (principle, or face value) in full on a stipulated date (maturity date).
• Issued by corporations, non-government entities (i.e. universities), and governments.

Issuing

• A complex process.
• Sums are large.
• Brought to market through Underwriter(s) (the banks)
• Sold OCT (Over-the-Counter), also traded on secondary market.
• Par = issuing price (usually $1k), also value at maturity.

Interest Rate

• Interest rate environment in Global Economy, e.g. Fed Funds Rate reacting to inflation or recession, risk-free rate, etc.
• Credit rating/worthiness of issuers — bonds that are more risky must offer higher interest rates
• Duration of the Bond (loan)