Definition Bond: Compact info on interest-bearing securities

Bonds refer to interest-bearing securities that play a major role in the investment area. Occasionally, bonds on the financial market also appear under the name of bonds, fixed-income securities or even fixed-income securities.

There are a wide variety of different bond types, so investors should carefully explore what form of bonds are appropriate for them.

First of all, two large groups of bonds, namely fixed income and fixed income securities, have a variable interest rate. The latter securities are also referred to in the jargon as floaters, since their interest rate may change.

Who issues bonds?

Who issues bonds?

In contrast to equities, bonds are not bearer securities but so-called creditor securities. This means that the holder of the bond, usually the investor, has the right to repay the principal against the issuer. However, he is not involved in the issuing company, as is the case with equities, but takes the position of a lender.

Bonds are essentially issued by three groups, namely states and municipalities, banks and other companies. The issuer provides the bond on one hand with certain conditions and on the other with an interest rate. The only exception are the so-called zero-coupon bonds, where there is no interest income for the investor, but a discount on the purchase price, so that the return results.

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What risk do bonds have?

What risk do bonds have?

Among other things, the large number of bonds issued in the market means that it is not possible to make uniform statements on the opportunities and risks of these securities.

For example, on the one hand there are extremely secure Bunds, which, however, only provide a low return for the investor. On the other hand, there are also numerous bonds issued by issuers with mediocre or poor credit ratings. This means that while these bonds promise a high return, the risk to the investor is also relatively high.

In order to give investors the best possible picture of the client’s

In order to give investors the best possible picture of the client

Creditworthiness and the associated risk, bonds or issuers are rated by so-called rating agencies. These agencies review the respective issuer and then announce on the basis of a note how high each investment risk is. If, for example, a bond has the rating “AAA”, as is the case with Bunds, this indicates excellent creditworthiness and a very low risk of default.

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