Types of Bonds
Glossary
- Bond
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An interest-bearing promise to pay a specified sum of money—the principal amount—due on a specific date.
- Default risk
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Possibility that a bond issuer will fail to pay principal or interest when due.
- Downgrade risk
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Possibility that a bond’s rating will be lowered because the issuer’s financial condition, or the financial condition of a party to the financial transaction, deteriorates.
- General obligation bond
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A bond secured by the pledge of the issuer’s full faith, credit and, usually, taxing power.
- Investment-grade
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Bonds considered suitable for preservation of invested capital by the rating agencies and rated Baa or BBB or above.
- Issuer
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A state, political subdivision, agency or authority that borrows money through the sale of bonds or notes.
- Liquidity
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A measure of the ease with which a security can be sold in the secondary market.
- Maturity
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The date when the principal amount of a security becomes due and payable.
- Monoline bond insurer
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A Triple-A rated company that guarantees that all interest and principal payments on a bond will be paid as scheduled and that participates in no other line of insurance business.
- Principal
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The face amount of a bond that must be repaid at maturity, as separate from interest.
- Ratings
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Designations used by investors’ services to give relative indications of ability to repay principal and interest on a timely basis.
- Revenue bond
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A bond payable solely from net or gross nontax revenues derived from tolls, charges or rents paid by users of the facility constructed with the proceeds of the bond issue.
- Secondary market
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Ongoing market for bonds previously offered or sold in the primary market.
- Triple-A claims-paying rating
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Designation for insurers offering superior security on both an absolute and a relative basis. Such insurers have been judged to possess the highest safety and have the capacity to meet policyholder obligations.
- Yield
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Percentage rate of return earned on a security.
All information and opinions contained in this publication were produced by the Securities Industry and Financial Markets Association from our membership and other sources believed by the Association to be accurate and reliable. By providing this general information, the Securities Industry and Financial Markets Association makes neither a recommendation as to the appropriateness of investing in fixed-income securities nor is it providing any specific investment advice for any particular investor. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and sources may be required to make informed investment decisions.