Bond Types Flashcards
Catastrophe bond =
Bond that allows the issuer to transfer ‘catastrophe risk’ from the firm to the capital markets
Catastrophe bond detail (3)
- Investors are compensated for additional risk in the form of higher coupon rates
- In event of catastrophe, bondholder gives up all or part of their investment
- Used mainly by insurance firms in case of earthquake/ storm/ terrorism
Eurobond =
A bond that is denominated in one currency, usually that of the issuer, but sold in other national markets
Eurobond eg
A bond issued by a French company in Australia, denominated in USD
Zero-coupon bond =
A bond that makes no coupon payments, investors will receive the par value at the maturity date
To compensate investors for zero coupon bonds
Issued at prices below the par value
Investor’s return zero-coupon bonds =
Difference between issue price and par value at maturity (imputed interest)
Par/ face value of corporate bond =
$1000
Samurai bond =
Yen-denominated bond sold in Japan by non-Japanese issuers
Serial bond =
Bonds issued with staggered maturity dates. Bonds mature sequentially, and the principle repayment burden is spread over time.
Junk bond =
A bond with a low credit rating due to its high default risk.
Junk bond issuers
Likely to be struggling financially/ have high risk of default/ start up eg Tesla
Callable bond =
A bond which allows the issuer to buy back the bond at a specified put price before the maturity date. Can return principle and stop interest payments.
Callable bond eg
Most municipal bonds
Puttable bond =
A bond which allows the bondholder to sell back the bond at a specified put price before the maturity date.
