The debt market is any market situation where trading debt instruments take plac

e. Examples of debt instruments include mortgages, promissory notes, bonds, and

Certificates of Deposit. A debt market establishes a structured environment wher
e these types of debt can be traded with ease between interested parties.
The debt market often goes by other names, based on the types of debt instrument
s that are traded. In the event that the market deals mainly with the trading of
municipal and corporate bond issues, the debt market may be known as a bond mar
ket. If mortgages and notes are the main focus of the trading, the debt market m
ay be known as a credit market. When fixed rates are connected with the debt ins
truments, the market may be known as a fixed income market.
Individual investors as well as groups or corporate partners may participate in
a debt market. Depending on the regulations imposed by governments, there may be
very little distinction between how an individual investor versus a corporation
would participate in a debt market. However, there are usually some regulations
in place that require that any type of investor in debt market offerings have a
minimum amount of assets to back the activity. This is true even with situation
s such as bonds, where there is very little chance of the investor losing his or
her investment.
One of the advantages to participating in a debt market is that the degree of ri
sk associated with the investment opportunities is very low. For investors who a
re focused on avoiding riskier ventures in favor of making a smaller but more or
less guaranteed return, going with bonds and similar investments simply makes s
ense. While the returns will never be considered spectacular, it is possible to
earn a significant amount of money over time, if the right debt market offerings
are chosen.
Related topics
Debt Market
Government Bonds
Bonds Treasury
Bond Rates
Government Bond
Debt Market News
International Debt Market
Issuers of various bonds, notes, and mortgages also benefit from the structured
environment of a debt market. By offering the instruments on a market that is re
gulated and has a solid working process, it is possible to interact with a large
r base of investors who could be attracted to the type of debt instrument offere
d. Because most markets have at least some basic requirements for participation
on the market, the issuers can spend less time qualifying potential buyers and m
ore time spreading the word about the debt instruments they have to offer.

Govt Bonds :
A government bond, also called a treasury bond, is a savings bond issued, or sol
d, by a government. The money obtained from bond sales normally is used to suppo
rt government projects and activities. A government bond usually offers a fixed
interest rate, and at variable points of the term of the bond or at maturity, th
e bond can be paid in full with interest. Government bonds are generally conside
red a safe investment because they are guaranteed by the government. Because of
the low risk of losing an investment, the yield on a government bond is often le
ss than other types of bonds.
In the United States (U.S.), three basic types of government bonds include treas
ury bills—or T-bills, treasury notes and treasury bonds. The basic types generally
are based on the maturity schedule of the bond. A treasury bill, for example, c
an be issued if the bond will mature in one year or less. Treasury notes have a
longer maturity schedule of two to ten years. For a maturity of 10 years or more
, the government can issue a treasury bond, with interest being paid semiannuall
y. Each country has its own variety of bonds available. The governments in the U
nited Kingdom (U.K.), South Africa and Ireland for example, offer several types
of gilts, or bonds. These sometimes pay a fixed amount every six months until th
e gilt matures and the remaining balance is paid. Many gilts are actually held b
y insurance groups and pension funds.
Government bonds can have several advantages. For example, a government bond typ
ically is a safe investment. These bonds also tend to provide a predictable retu
rn. While stocks may in the long-term out perform a government bond in terms of
interest accrued, bonds guarantee a return—something not generally expected from a
stock. Some bonds also may have tax advantages. In the U.S., interest on bonds
is often tax deductible—a consumer holding a federal bond can claim the interest e
arned as a tax deduction, for instance.
Some government bonds have minimum purchase requirements. Bonds typically are av
ailable at brokerage or investment firms and banks. Government Web sites typical
ly offer information on where to purchase bonds, minimum purchase requirements a
nd maturity details.

Investment bonds are debt instruments that are purchased by investors to offset
risk and also to provide diversification to a portfolio. These investments gener
ate reasonably stable income over a period of time. Investment bonds may be issu
ed by a regional or local government, or by a corporation in need of capital. Bo
nds are considered a relatively safe investment in comparison with equities, alt
hough the stock market holds greater promise for surprisingly high returns. Trad
ing in investment bonds takes place in the fixed-income markets.
In exchange for a loan, bondholders receive a certificate detailing the value of
the bond, the interest rate, the frequency of payments, and the maturity date o
r expiration of the contract. Investors receive semi-annual interest payments ov
er the term of the bond and receive the principal amount when the bond matures.
The combination of a bond's interest and principal payments constitute its yield
.
Investing in bonds carries less risk than equity investments because bondholders
receive priority for payments over stockholders. Another feature of investment
bonds includes a characterization of being a safe investment due to the steady s
tream of income provided to investors over a period of years. Savings bonds, for
instance, may be used as vehicles to save for a college education. Taxes on sav
ings bonds may be deferred until the maturity date of the bond.
Investment bonds may be issued by a regional government, local municipality, or
corporation. In the US, the government issues bonds known as treasuries, because
they are issued by the US Treasury Department. Proceeds from treasuries are use
d, for instance, to pay down the country's national debt. The life of US treasur
ies varies from three months to 30 years in duration.
In addition to government-issued bonds, companies issue debt through investment
bonds in the fixed-income markets as a means to raise money. Investment bonds is
sued by a corporation tend to pay higher interest than government bonds. This is
because the risk of a company defaulting on a loan is typically higher than a g
overnment failing to make payments, and therefore investors are taking on more r
isk.
A corporate investment bond may be rated by a third party agency. This debt rati
ng is a reflection of how much risk the bond carries and the likelihood that the
issuer will default on a loan. Investment-grade bonds carry less risk of defaul
t than non-investment grade bonds do. Non-investment grade bonds, also known as
high-yield or junk bonds, are issued by companies that are more vulnerable to mi
ssing interest or principal payments based on credit history or other debts on a
balance sheet.

Guaranteed bonds are types of bonds that are paid by parties other than those th
at issued the bonds. A bond is a debt security that represents money the issuer
owes the holder. Bonds have individual terms, but in essence, they consist of pr
incipal and interest. While principal is the original amount, interest is an add
itional amount at a fixed rate, which serves as compensation for the borrowed am
ount. Interest is paid at specific times agreed upon by both the issuer and hold
er, and when the bond comes to maturity, the full amount of principal plus inter
est is due.
With guaranteed bonds, either the principal, interest or both are paid by a part
y other than the original issuer, borrower or debtor. Making guaranteed bonds ca
n be a marketing strategy, and it is used by some industrial companies to streng
then credit and to boost their own financial standing. These corporations often
target businesses that they have a monetary interest in and offer to make guaran
teed bonds for them.
These bonds can be risky because they are not necessarily sound investments. A g
uarantee bond can be difficult to ensure because the guarantor, the one who pled
ges that the debt will be paid, may default on the payment. A guaranteed bond sh
ould be supported with security that ensures the principal and interest can be p
aid. Guaranteed bonds should always come with written terms that are phrased in
a way that requires the guarantor to cover the debtor’s payment, no matter what.
After guarantee bonds are issued, the terms of guarantee are outlined on the bon
ds and signed by the guaranteeing company. The best way to look at guaranteed bo
nds is an obligation of the company that issues them. Bonds that have been guara
nteed differ from bonds that have been guaranteed by endorsement. Guaranteed bon
ds may have been guaranteed after they were issued, and the terms of guarantee a
re not necessarily explicitly outlined. When bonds are guaranteed by endorsement
, each bond lists the fact that it is guaranteed, along with the signature of th
e cooperating corporation.
If the bond issuer goes into default, a guarantee will limit the repercussions f
or the bondholder. Every country has its own rules for dealing with the defaulti
ng of a bond issuer. In some nations such as Canada, the federal government guar
antees the bond. If the issuer defaults, the government is responsible for the t
otal cost of the bond, including principal and interest

Revenue bonds are a type of bond where the repayments are not simply taken from
general government funds. Instead, at the least, the money comes from a specific
agency. In most cases the money comes specifically from the revenue that result
s from the project funded by the bond s issue. Using revenue bonds can allow off
icials to fund a project without breaching general rules and limits on governmen
t debt.
A bond is a government-issued debt security product. Though it is technically a
financial product bought by an investor, it effectively acts as a loan by the in
vestor to the government. The bond can usually be redeemed on a set date at a pr
emium to the initial price paid, with this premium effectively being the interes
t on the loan. Bonds can be sold between different investors before the redempti
on date. Government bonds are usually classed as a less risky type of security b
ecause, while a company may go out of business or refuse to repay its bonds, an
established and stable government will virtually always repay bonds.
With some government bonds, the money raised goes into general government funds.
These are known as general obligation bonds. The repayments also come out of ge
neral government funds, most commonly the money raised by taxes.
Revenue bonds work in a different way. The money raised will usually be allocate
d to a specific project. This could include road building, sewer works, a new st
adium or any similar public spending project. The bonds are then repaid from the
revenues that result, for example from road tolls, sewerage charges, stadium re
venue or whatever the relevant revenue may be.
There are a couple of consequential differences between revenue bonds and genera
l obligation bonds. One is that revenue bonds usually have a longer period befor
e redemption. Rather than a few years, it will often be as long as 20 or 30 year
s. This is because it will likely take this time before the project begins to ge
nerate enough money to make repayments. Remember that officials cannot simply pa
y back the money from general funds.
Revenue bonds are also somewhat riskier than a general obligation bond. This is
because there is a higher chance that the money will not be in place to repay th
e bond upon redemption. In such a situation, the issuing government will usually
defer payment rather than simply refuse to pay it back. The risk of such a defe
rment means revenue bonds usually carry a higher rate of interest.

War bonds are government-issued savings bonds which are used to finance a war or
a military action. In the United States, the last official war bond was the Ser
ies E Bond issued during the Second World War. War bonds generate capital for th
e federal government and they make civilians feel involved in their national mil
itaries; exhortations to buy war bonds are often accompanied with appeals to pat
riotism and conscience.
A bond is a special type of security. Bonds are issued by an agency which wants
to generate capital, and the people who purchase them are essentially loaning mo
ney to the issuing agency. In return for the loan, the bond earns a set interest
rate, and the purchaser can redeem the bond for its face value at a later date.
Government issued bonds such as war bonds tend to have a yield which is below m
arket value, but the bonds are considered very safe, stable investments.
In World War One, Americans could buy “Liberty Bonds,” while other nations issued an
assortment of bonds and savings stamps to finance their war efforts. The langua
ge used in the promotion of war bonds is often quite florid, drawing the purchas
er into the transaction with an appeal to his or her patriotism. War bonds are a
vailable in a wide range of denominations to make them affordable to all, rangin
g from small stamps which school children could purchase to bonds in very large
denominations for wealthier individuals.
During the Second World War, a number of companies encouraged citizens to buy wa
r bonds. In addition to funding the government, war bonds also reduced the amoun
t of currency on the open market, with the hope of keeping inflation rates down.
Many Americans think of the Series E Bond when they hear the term “war bonds.” This
bond was initially marketed as a “defense bond” in 1935, and with the outbreak of w
ar, the Treasury switched to calling it a “war bond.” Series E Bonds were available
from the Treasury until 1980.
Savings bonds are interest-bearing bonds that are issued by the federal governme
nt of the Unites States. Unlike bonds that are traded in the securities markets,
savings bonds cannot be transferred once purchased, and are in this sense non-t
ransferable. Many savings bonds are sold at less than their face value, leaving
plenty of room for interest to accrue over a period of many years. Because they
represent government obligations, savings bonds are considered to be one of the
safest investments in the world, although their rate of return fluctuates period
ically based on prevailing interest rates and inflation data.
The original savings bonds were created by the U.S. government to finance Americ
an involvement in World War I. There are two types of savings bonds that are sti
ll available; the series EE and series I bonds. Series EE savings bonds pay a ra
te of interest that varies periodically, but is calculated as 90% of the average
yield on five-year Treasury securities over the past six months. In other words
, every six months, the average yield of a five-year Treasury security is calcul
ated for the time since the last calculation. If the result comes out to five pe
rcent, for instance, then the new yield on series EE bonds would be 90% of that,
or 4.5%.
This changes for bonds issued in May 2005 or later, which pay a fixed rate of in
terest, somewhat like a certificate of deposit (CD). Series EE bonds are designe
d to be purchased by individuals, as opposed to institutional investors, and the
ir interest is taxed only at the federal level. Savings bond interest is calcula
ted monthly, but it is not paid until the bond is redeemed, at which time the in
terest becomes taxable.
Series I bonds are the second type of savings bonds that are commonly issued. Th
eir yield also fluctuates, but this is based partly on inflation indices rather
than interest rates elsewhere. The other part of the interest paid on a series I
bond is a fixed rate that stays constant over the lifetime of the bond. New rat
es are calculated in May and November of every year.

A surety bond is a specific type of bond which involves three different parties.
The first party is the principal -- this is the person or organization who is b
eing secured against default. The second party is the obligee -- this is the per
son or organization who is owed money or labor. The third party is the surety --
this is the person or organization who is promising to pay a certain amount sho
uld the principal default.
Surety bonds may be used in an incredibly wide range of circumstances. They are
basically used any time an individual or group is expected to do something, and
some further assurance of their compliance is needed.
The principal enters into a contract with a surety, usually an insurance organiz
ation or underwriter, basically promising that they will reimburse the surety if
they default on their obligation to the obligee. If they do default, the surety
gives the agreed upon amount of money to the obligee. The principal is then leg
ally required to reimburse the surety, including any losses and expenses the sur
ety has acquired handling their case. Since the surety in this case is a lender,
it is granted the same rights in getting its loss back from the principal as an
y other lender would have -- this is in contrast to typical insurance, in which
the insurance company is much more seriously limited in its legal recourse.
Types of surety bonds include contract bonds, court bonds, bail bonds, and licen
se bonds, though there are other types as well. Contract surety bonds are needed
when the principal is given a contract to perform some sort of building or main
tenance job. Since the contract may stipulate a range of specifications, a maxim
um cost for the project, and a time until completion, the obligee may require a
surety that the contractor will fulfill the contract appropriately.
Court surety bonds are often required by a court before a principal tries to fil
e some types of claims or injunctions, or tries to appeal a case. In the event t
hat the principal fails at what they set out for -- acquiring a restraining orde
r, for example -- the court may require them to pay court costs and perhaps a fi
ne if the case was wrongfully pursued. Surety in this case obligates the princip
al to pay these costs if they are incurred, before the principal uses the court
s time.
Bail surety bonds are one of the most well-known types of surety bonds, though a
lso one that many large insurance companies and banks will not issue. A bail bon
d basically promises the court that the principal will show up at an appointed c
ourt date; if the principal does not show up, the surety pays the court a fine a
nd collects from the principal. Since bail bonds have such a high default rate,
their issuance is often taken up only by a handful of specialists, who may then
charge rather exorbitant penalty and interest rates.
License surety bonds are usually necessary when starting a new business or acqui
ring a new type of license for an existing business. The principal in this case
is the business owner, who is getting surety that they will comply with all of t
he requirements set out by the license. The obligee is the state or local govern
ment who is issuing the specific license, and they are paid if the principal doe
s not conduct themselves with accordance with license requirements.
Related topics
Surety Bonds
Surety Bail Bonds
Insurance Surety Bonds
Surety Bond Company
Surety Bond Insurance
Construction Surety Bonds
Surety Bail Bond
Other types of surety bonds include permit bonds, which are similar to license b
onds; probate bonds, which are required for the executor when handling the asset
s of an estate or minor; and public official bonds, which ensure that an appoint
ed or elected official will act in accordance with the law.
Treasury securities include multiple types of securities that are issued by the
United States government to help raise capital. Monies received by the U.S. gove
rnment from the sale of Treasury securities help pay for the operation of the fe
deral government. Additionally, the U.S. government uses these monies to pay off
outstanding debts.
Treasury bills (T-bills), Treasury bonds (T-bonds), Treasury notes (T-notes), an
d Treasury Inflation Protected Securities (TIPS) are all forms of Treasury secur
ities that are auctioned on secondary markets. A T-bill is a short-term security
that is not callable. Investors are able to purchase T-bills that mature quarte
rly, biannually and yearly. T-bills that mature quarterly and biannually are auc
tioned on a weekly basis, while those that mature after a year are auctioned mon
thly.
T-bonds and T-notes are callable treasury securities that are issued monthly, qu
arterly and biannually. Those who invest in T-notes or T-bonds will receive an i
nterest payment two times per year and their principal will be returned at the t
ime of maturity. Maturity times for T-notes range between two and ten years, whi
le the maturity time for a T-bond is more than ten years. In the event that a T-
bond or T-note is called, the U.S. government is required to let investors know
four months prior to their intended call date.
In order to protect themselves from inflation, investors may choose to buy TIPS.
TIPS are similar to T-notes and T-bonds because they pay interest two times per
year. Maturity times for TIPS are five, ten or 20 years. The U.S. government pr
otects investors by adjusting the principle of these special Treasury securities
to the Consumer Price Index (CPI).
U.S. savings bonds are the last kind of Treasury security issued by the U.S. gov
ernment. While T-bills, T-notes, T-bonds and TIPS are transferable, savings bond
s are only payable to the person who the bond was issued to. Savings bonds may b
e redeemed as early as one year after purchase and can earn interest up to 30 ye
ars.
U.S. Treasury securities are popular choices for investors because of their many
features and benefits. Because U.S. Treasury securities are secured by the U.S.
government, they are regarded to be extremely safe investments. Additionally, a
ll of the securities are very easy to buy and sell, which helps them to be extre
mely liquid. Also, any interest income that is earned by investors who purchase
U.S. Treasury securities is exempt from local and state taxes.

A treasury bond is a debt instrument issued by the United States Treasury. The t
reasury raises money which can be used to run the United States Government by se
lling bonds and other financial securities, and it provides incentives to citize
ns to purchase such securities to ensure that it will have funds when it needs t
hem. By purchasing a treasury bond, someone is essentially lending money to the
government in exchange for fixed interest payments every six months. Once the bo
nd matures, the holder receives its face value.
Treasury bonds mature in a minimum of 10 years, with 10 year bonds being most co
mmon, although some mature in as much as 30 years. They are sold four times a ye
ar: in February, May, August, and October. Auctions of bonds are held by the Tre
asury, and individuals can also purchase bonds directly through the Treasury. Re
cipients can buy treasury bonds in a wide variety of denominations, with the max
imum allowable purchase being five million dollars worth of bonds, and purchaser
s will receive interest payments every six months until the bond matures.
Because treasury bonds are backed by the full faith and credit of the United Sta
tes government, they are a very highly rated security, making them an extremely
sound investment. The interest returns tend to be fairly low, and certainly lowe
r than more risky securities, but some people prefer to invest in T-bonds, as th
ey are called, because they are highly dependable.
The interest income from a treasury bond is only taxed on the federal level, not
on the state or local level. This can be a distinct benefit for people who are
receiving large interest payments, and is another reason some people like to inv
est in treasury bonds. The tax forgiveness is once of the incentives offered by
the Treasury to encourage people to buy T-bonds.
The interest rate on a treasury bond tends to be less than thrilling, which lead
s many investors to purchase these bonds in large quantities to ensure large int
erest payments. This can make investment in treasury bonds prohibitive for peopl
e without a great deal of money, as they may lack the funds necessary to purchas
e enough bonds to make the interest payments worthwhile. However, treasury bonds
can also be used as a savings instrument, as the face value of the bond will be
paid out when it matures, generating a burst of funds which may be useful. Pare
nts, for example, might choose to purchase T-bonds yearly so that their children
will have money for college.

Let s imagine for a minute that you want to borrow $5000 from your rich Uncle Wi
seGEEK. After the initial shock wears off, he agrees to loan you the money. But
before any exchange can take place, your uncle wants the specific repayment term
s spelled out in writing and signed by both parties. This document would be cons
idered a promissory note and is legally binding. No matter where you go or what
you do with the money, Uncle WiseGEEK can always prove the existence of the orig
inal loan.
A promissory note, often shortened to note , should provide specific details on
the amount of the original loan, known as the principal, the repayment schedule
and any applicable interest rate. It is not unusual for a promissory note also
to contain details such as grace periods or penalties for defaulting. Although e
ither party may draw up a promissory note, it s usually in the best interest of
the lender to make sure all of the important elements are included. Once both pa
rties sign a promissory note, the precise terms of that contract are the ones wh
ich will be enforced during any future legal proceedings.
A promissory note is not the same as an informal IOU. A personal IOU may acknowl
edge that a debt exists, but the specific repayment details may not be included.
Commercial lending companies often require borrowers to read and sign a very de
tailed promissory note before a loan can be deposited or processed. The borrower
should hold onto this note until the loan becomes due, since it contains import
ant information on interest rates and amount of the principal to be repaid.
Related topics
Promissory Note
Free Promissory Note
Legal Promissory Note
Installment Promissory Note
Mortgage Promissory Note
Promissory Note Contract
Sell Promissory Note
The production of a properly worded and signed promissory note is usually enough
to prevail in any legal proceeding against the borrower, but there are some exc
eptions. If the borrower can prove he or she signed the document under extreme d
uress, meaning under undue pressure from the lender, then a judge may rule the n
ote unenforceable. The borrower must sign a completed document, not merely place
his or her signature at the bottom of a blank page. A promissory note should no
t contain conditions which would be considered illegal elsewhere, such as an imp
ossibly high interest rate or additional penalties not spelled out in writing

Corporate bonds are debt instruments that are issued by corporations considered
to be publicly held. Generally, a corporate bond is issued as a means of raising
necessary funds to allow the company to engage in an expansion project, or to a
ddress other corporate projects that are anticipated to increase the profitabili
ty of the company over the long term. The expectation is that the corporation wi
ll begin to benefit from the project before the bond issue matures, allowing the
company to comfortably honor both the face value of the bond and any accrued in
terest due to the bondholders.
In most areas of the world, a corporate bond is likely to pay a higher rate of i
nterest than bonds issued by local or national governments. However, it is impor
tant for the investor to note that the purchase of a corporate bond usually does
not allow for the interest generated by the bond to be tax exempt. Many example
s of the corporate bond include terms and conditions that allow for the issuance
of interest payments on an annual or semiannual basis, which must be accounted
for on annual tax returns.
Purchasing a corporate bond is usually accomplished through investment brokers.
However, it is also possible to acquire a bond issue from a secondary market as
well. In general, choosing to purchase the corporate bond through a broker will
mean paying the current par value associated with the bond. When purchasing the
corporate bond from a secondary market, the price may be higher or lower than th
e par value.
A third option is to invest in a mutual fund that focuses on the purchase of cor
porate bonds as part of the fund strategy. Investors who prefer to leave most of
the investigation into bond issues with the managers of the mutual fund often f
avor this approach. Assuming that the corporate bond or bonds selected for inclu
sion in the mutual fund are performing well, an investor will realize a signific
ant return.
The corporate bond can be a short term or a long term bond issue. There are exam
ples of a corporate bond that matures from one to five years, while other exampl
es may be structured to mature anywhere from thirty to forty years from the date
of issue. Various rates of maturation will present advantages to the investor,
depending on what the investor hopes to gain from the purchase of the bond.

The debt market is any market situation where trading debt instruments take plac
e. Examples of debt instruments include mortgages, promissory notes, bonds, and
Certificates of Deposit. A debt market establishes a structured environment wher
e these types of debt can be traded with ease between interested parties.
The debt market often goes by other names, based on the types of debt instrument
s that are traded. In the event that the market deals mainly with the trading of
municipal and corporate bond issues, the debt market may be known as a bond mar
ket. If mortgages and notes are the main focus of the trading, the debt market m
ay be known as a credit market. When fixed rates are connected with the debt ins
truments, the market may be known as a fixed income market.
Individual investors as well as groups or corporate partners may participate in
a debt market. Depending on the regulations imposed by governments, there may be
very little distinction between how an individual investor versus a corporation
would participate in a debt market. However, there are usually some regulations
in place that require that any type of investor in debt market offerings have a
minimum amount of assets to back the activity. This is true even with situation
s such as bonds, where there is very little chance of the investor losing his or
her investment.
One of the advantages to participating in a debt market is that the degree of ri
sk associated with the investment opportunities is very low. For investors who a
re focused on avoiding riskier ventures in favor of making a smaller but more or
less guaranteed return, going with bonds and similar investments simply makes s
ense. While the returns will never be considered spectacular, it is possible to
earn a significant amount of money over time, if the right debt market offerings
are chosen.
Related topics
Debt Market
Government Bonds
Bonds Treasury
Bond Rates
Government Bond
Debt Market News
International Debt Market
Issuers of various bonds, notes, and mortgages also benefit from the structured
environment of a debt market. By offering the instruments on a market that is re
gulated and has a solid working process, it is possible to interact with a large
r base of investors who could be attracted to the type of debt instrument offere
d. Because most markets have at least some basic requirements for participation
on the market, the issuers can spend less time qualifying potential buyers and m
ore time spreading the word about the debt instruments they have to offer.

Govt Bonds :
A government bond, also called a treasury bond, is a savings bond issued, or sol
d, by a government. The money obtained from bond sales normally is used to suppo
rt government projects and activities. A government bond usually offers a fixed
interest rate, and at variable points of the term of the bond or at maturity, th
e bond can be paid in full with interest. Government bonds are generally conside
red a safe investment because they are guaranteed by the government. Because of
the low risk of losing an investment, the yield on a government bond is often le
ss than other types of bonds.
In the United States (U.S.), three basic types of government bonds include treas
ury bills—or T-bills, treasury notes and treasury bonds. The basic types generally
are based on the maturity schedule of the bond. A treasury bill, for example, c
an be issued if the bond will mature in one year or less. Treasury notes have a
longer maturity schedule of two to ten years. For a maturity of 10 years or more
, the government can issue a treasury bond, with interest being paid semiannuall
y. Each country has its own variety of bonds available. The governments in the U
nited Kingdom (U.K.), South Africa and Ireland for example, offer several types
of gilts, or bonds. These sometimes pay a fixed amount every six months until th
e gilt matures and the remaining balance is paid. Many gilts are actually held b
y insurance groups and pension funds.
Government bonds can have several advantages. For example, a government bond typ
ically is a safe investment. These bonds also tend to provide a predictable retu
rn. While stocks may in the long-term out perform a government bond in terms of
interest accrued, bonds guarantee a return—something not generally expected from a
stock. Some bonds also may have tax advantages. In the U.S., interest on bonds
is often tax deductible—a consumer holding a federal bond can claim the interest e
arned as a tax deduction, for instance.
Some government bonds have minimum purchase requirements. Bonds typically are av
ailable at brokerage or investment firms and banks. Government Web sites typical
ly offer information on where to purchase bonds, minimum purchase requirements a
nd maturity details.

Investment bonds are debt instruments that are purchased by investors to offset
risk and also to provide diversification to a portfolio. These investments gener
ate reasonably stable income over a period of time. Investment bonds may be issu
ed by a regional or local government, or by a corporation in need of capital. Bo
nds are considered a relatively safe investment in comparison with equities, alt
hough the stock market holds greater promise for surprisingly high returns. Trad
ing in investment bonds takes place in the fixed-income markets.
In exchange for a loan, bondholders receive a certificate detailing the value of
the bond, the interest rate, the frequency of payments, and the maturity date o
r expiration of the contract. Investors receive semi-annual interest payments ov
er the term of the bond and receive the principal amount when the bond matures.
The combination of a bond s interest and principal payments constitute its yield
.
Investing in bonds carries less risk than equity investments because bondholders
receive priority for payments over stockholders. Another feature of investment
bonds includes a characterization of being a safe investment due to the steady s
tream of income provided to investors over a period of years. Savings bonds, for
instance, may be used as vehicles to save for a college education. Taxes on sav
ings bonds may be deferred until the maturity date of the bond.
Investment bonds may be issued by a regional government, local municipality, or
corporation. In the US, the government issues bonds known as treasuries, because
they are issued by the US Treasury Department. Proceeds from treasuries are use
d, for instance, to pay down the country s national debt. The life of US treasur
ies varies from three months to 30 years in duration.
In addition to government-issued bonds, companies issue debt through investment
bonds in the fixed-income markets as a means to raise money. Investment bonds is
sued by a corporation tend to pay higher interest than government bonds. This is
because the risk of a company defaulting on a loan is typically higher than a g
overnment failing to make payments, and therefore investors are taking on more r
isk.
A corporate investment bond may be rated by a third party agency. This debt rati
ng is a reflection of how much risk the bond carries and the likelihood that the
issuer will default on a loan. Investment-grade bonds carry less risk of defaul
t than non-investment grade bonds do. Non-investment grade bonds, also known as
high-yield or junk bonds, are issued by companies that are more vulnerable to mi
ssing interest or principal payments based on credit history or other debts on a
balance sheet.

Guaranteed bonds are types of bonds that are paid by parties other than those th
at issued the bonds. A bond is a debt security that represents money the issuer
owes the holder. Bonds have individual terms, but in essence, they consist of pr
incipal and interest. While principal is the original amount, interest is an add
itional amount at a fixed rate, which serves as compensation for the borrowed am
ount. Interest is paid at specific times agreed upon by both the issuer and hold
er, and when the bond comes to maturity, the full amount of principal plus inter
est is due.
With guaranteed bonds, either the principal, interest or both are paid by a part
y other than the original issuer, borrower or debtor. Making guaranteed bonds ca
n be a marketing strategy, and it is used by some industrial companies to streng
then credit and to boost their own financial standing. These corporations often
target businesses that they have a monetary interest in and offer to make guaran
teed bonds for them.
These bonds can be risky because they are not necessarily sound investments. A g
uarantee bond can be difficult to ensure because the guarantor, the one who pled
ges that the debt will be paid, may default on the payment. A guaranteed bond sh
ould be supported with security that ensures the principal and interest can be p
aid. Guaranteed bonds should always come with written terms that are phrased in
a way that requires the guarantor to cover the debtor’s payment, no matter what.
After guarantee bonds are issued, the terms of guarantee are outlined on the bon
ds and signed by the guaranteeing company. The best way to look at guaranteed bo
nds is an obligation of the company that issues them. Bonds that have been guara
nteed differ from bonds that have been guaranteed by endorsement. Guaranteed bon
ds may have been guaranteed after they were issued, and the terms of guarantee a
re not necessarily explicitly outlined. When bonds are guaranteed by endorsement
, each bond lists the fact that it is guaranteed, along with the signature of th
e cooperating corporation.
If the bond issuer goes into default, a guarantee will limit the repercussions f
or the bondholder. Every country has its own rules for dealing with the defaulti
ng of a bond issuer. In some nations such as Canada, the federal government guar
antees the bond. If the issuer defaults, the government is responsible for the t
otal cost of the bond, including principal and interest

Revenue bonds are a type of bond where the repayments are not simply taken from
general government funds. Instead, at the least, the money comes from a specific
agency. In most cases the money comes specifically from the revenue that result
s from the project funded by the bond s issue. Using revenue bonds can allow off
icials to fund a project without breaching general rules and limits on governmen
t debt.
A bond is a government-issued debt security product. Though it is technically a
financial product bought by an investor, it effectively acts as a loan by the in
vestor to the government. The bond can usually be redeemed on a set date at a pr
emium to the initial price paid, with this premium effectively being the interes
t on the loan. Bonds can be sold between different investors before the redempti
on date. Government bonds are usually classed as a less risky type of security b
ecause, while a company may go out of business or refuse to repay its bonds, an
established and stable government will virtually always repay bonds.
With some government bonds, the money raised goes into general government funds.
These are known as general obligation bonds. The repayments also come out of ge
neral government funds, most commonly the money raised by taxes.
Revenue bonds work in a different way. The money raised will usually be allocate
d to a specific project. This could include road building, sewer works, a new st
adium or any similar public spending project. The bonds are then repaid from the
 revenues that result, for example from road tolls, sewerage charges, stadium re
venue or whatever the relevant revenue may be.
There are a couple of consequential differences between revenue bonds and genera
l obligation bonds. One is that revenue bonds usually have a longer period befor
e redemption. Rather than a few years, it will often be as long as 20 or 30 year
s. This is because it will likely take this time before the project begins to ge
nerate enough money to make repayments. Remember that officials cannot simply pa
y back the money from general funds.
Revenue bonds are also somewhat riskier than a general obligation bond. This is
because there is a higher chance that the money will not be in place to repay th
e bond upon redemption. In such a situation, the issuing government will usually
defer payment rather than simply refuse to pay it back. The risk of such a defe
rment means revenue bonds usually carry a higher rate of interest.

War bonds are government-issued savings bonds which are used to finance a war or
a military action. In the United States, the last official war bond was the Ser
ies E Bond issued during the Second World War. War bonds generate capital for th
e federal government and they make civilians feel involved in their national mil
itaries; exhortations to buy war bonds are often accompanied with appeals to pat
riotism and conscience.
A bond is a special type of security. Bonds are issued by an agency which wants
to generate capital, and the people who purchase them are essentially loaning mo
ney to the issuing agency. In return for the loan, the bond earns a set interest
rate, and the purchaser can redeem the bond for its face value at a later date.
Government issued bonds such as war bonds tend to have a yield which is below m
arket value, but the bonds are considered very safe, stable investments.
In World War One, Americans could buy “Liberty Bonds,” while other nations issued an
assortment of bonds and savings stamps to finance their war efforts. The langua
ge used in the promotion of war bonds is often quite florid, drawing the purchas
er into the transaction with an appeal to his or her patriotism. War bonds are a
vailable in a wide range of denominations to make them affordable to all, rangin
g from small stamps which school children could purchase to bonds in very large
denominations for wealthier individuals.
During the Second World War, a number of companies encouraged citizens to buy wa
r bonds. In addition to funding the government, war bonds also reduced the amoun
t of currency on the open market, with the hope of keeping inflation rates down.
Many Americans think of the Series E Bond when they hear the term “war bonds.” This
bond was initially marketed as a “defense bond” in 1935, and with the outbreak of w
ar, the Treasury switched to calling it a “war bond.” Series E Bonds were available
from the Treasury until 1980.
Savings bonds are interest-bearing bonds that are issued by the federal governme
nt of the Unites States. Unlike bonds that are traded in the securities markets,
savings bonds cannot be transferred once purchased, and are in this sense non-t
ransferable. Many savings bonds are sold at less than their face value, leaving
plenty of room for interest to accrue over a period of many years. Because they
represent government obligations, savings bonds are considered to be one of the
safest investments in the world, although their rate of return fluctuates period
ically based on prevailing interest rates and inflation data.
The original savings bonds were created by the U.S. government to finance Americ
an involvement in World War I. There are two types of savings bonds that are sti
ll available; the series EE and series I bonds. Series EE savings bonds pay a ra
te of interest that varies periodically, but is calculated as 90% of the average
yield on five-year Treasury securities over the past six months. In other words
, every six months, the average yield of a five-year Treasury security is calcul
ated for the time since the last calculation. If the result comes out to five pe
rcent, for instance, then the new yield on series EE bonds would be 90% of that,
or 4.5%.
This changes for bonds issued in May 2005 or later, which pay a fixed rate of in
terest, somewhat like a certificate of deposit (CD). Series EE bonds are designe
d to be purchased by individuals, as opposed to institutional investors, and the
ir interest is taxed only at the federal level. Savings bond interest is calcula
ted monthly, but it is not paid until the bond is redeemed, at which time the in
terest becomes taxable.
Series I bonds are the second type of savings bonds that are commonly issued. Th
eir yield also fluctuates, but this is based partly on inflation indices rather
than interest rates elsewhere. The other part of the interest paid on a series I
bond is a fixed rate that stays constant over the lifetime of the bond. New rat
es are calculated in May and November of every year.

A surety bond is a specific type of bond which involves three different parties.
The first party is the principal -- this is the person or organization who is b
eing secured against default. The second party is the obligee -- this is the per
son or organization who is owed money or labor. The third party is the surety --
this is the person or organization who is promising to pay a certain amount sho
uld the principal default.
Surety bonds may be used in an incredibly wide range of circumstances. They are
basically used any time an individual or group is expected to do something, and
some further assurance of their compliance is needed.
The principal enters into a contract with a surety, usually an insurance organiz
ation or underwriter, basically promising that they will reimburse the surety if
they default on their obligation to the obligee. If they do default, the surety
gives the agreed upon amount of money to the obligee. The principal is then leg
ally required to reimburse the surety, including any losses and expenses the sur
ety has acquired handling their case. Since the surety in this case is a lender,
it is granted the same rights in getting its loss back from the principal as an
y other lender would have -- this is in contrast to typical insurance, in which
the insurance company is much more seriously limited in its legal recourse.
Types of surety bonds include contract bonds, court bonds, bail bonds, and licen
se bonds, though there are other types as well. Contract surety bonds are needed
 when the principal is given a contract to perform some sort of building or main
tenance job. Since the contract may stipulate a range of specifications, a maxim
um cost for the project, and a time until completion, the obligee may require a
surety that the contractor will fulfill the contract appropriately.
Court surety bonds are often required by a court before a principal tries to fil
e some types of claims or injunctions, or tries to appeal a case. In the event t
hat the principal fails at what they set out for -- acquiring a restraining orde
r, for example -- the court may require them to pay court costs and perhaps a fi
ne if the case was wrongfully pursued. Surety in this case obligates the princip
al to pay these costs if they are incurred, before the principal uses the court
s time.
Bail surety bonds are one of the most well-known types of surety bonds, though a
lso one that many large insurance companies and banks will not issue. A bail bon
d basically promises the court that the principal will show up at an appointed c
ourt date; if the principal does not show up, the surety pays the court a fine a
nd collects from the principal. Since bail bonds have such a high default rate,
their issuance is often taken up only by a handful of specialists, who may then
charge rather exorbitant penalty and interest rates.
License surety bonds are usually necessary when starting a new business or acqui
ring a new type of license for an existing business. The principal in this case
is the business owner, who is getting surety that they will comply with all of t
he requirements set out by the license. The obligee is the state or local govern
ment who is issuing the specific license, and they are paid if the principal doe
s not conduct themselves with accordance with license requirements.
Related topics
Surety Bonds
Surety Bail Bonds
Insurance Surety Bonds
Surety Bond Company
Surety Bond Insurance
Construction Surety Bonds
Surety Bail Bond
Other types of surety bonds include permit bonds, which are similar to license b
onds; probate bonds, which are required for the executor when handling the asset
s of an estate or minor; and public official bonds, which ensure that an appoint
ed or elected official will act in accordance with the law.

Treasury securities include multiple types of securities that are issued by the
United States government to help raise capital. Monies received by the U.S. gove
rnment from the sale of Treasury securities help pay for the operation of the fe
deral government. Additionally, the U.S. government uses these monies to pay off
outstanding debts.
Treasury bills (T-bills), Treasury bonds (T-bonds), Treasury notes (T-notes), an
d Treasury Inflation Protected Securities (TIPS) are all forms of Treasury secur
ities that are auctioned on secondary markets. A T-bill is a short-term security
that is not callable. Investors are able to purchase T-bills that mature quarte
rly, biannually and yearly. T-bills that mature quarterly and biannually are auc
tioned on a weekly basis, while those that mature after a year are auctioned mon
thly.
T-bonds and T-notes are callable treasury securities that are issued monthly, qu
arterly and biannually. Those who invest in T-notes or T-bonds will receive an i
nterest payment two times per year and their principal will be returned at the t
ime of maturity. Maturity times for T-notes range between two and ten years, whi
le the maturity time for a T-bond is more than ten years. In the event that a T-
bond or T-note is called, the U.S. government is required to let investors know
four months prior to their intended call date.
In order to protect themselves from inflation, investors may choose to buy TIPS.
TIPS are similar to T-notes and T-bonds because they pay interest two times per
year. Maturity times for TIPS are five, ten or 20 years. The U.S. government pr
otects investors by adjusting the principle of these special Treasury securities
to the Consumer Price Index (CPI).
U.S. savings bonds are the last kind of Treasury security issued by the U.S. gov
ernment. While T-bills, T-notes, T-bonds and TIPS are transferable, savings bond
s are only payable to the person who the bond was issued to. Savings bonds may b
e redeemed as early as one year after purchase and can earn interest up to 30 ye
ars.
U.S. Treasury securities are popular choices for investors because of their many
features and benefits. Because U.S. Treasury securities are secured by the U.S.
government, they are regarded to be extremely safe investments. Additionally, a
ll of the securities are very easy to buy and sell, which helps them to be extre
mely liquid. Also, any interest income that is earned by investors who purchase
U.S. Treasury securities is exempt from local and state taxes.

A treasury bond is a debt instrument issued by the United States Treasury. The t
reasury raises money which can be used to run the United States Government by se
lling bonds and other financial securities, and it provides incentives to citize
ns to purchase such securities to ensure that it will have funds when it needs t
hem. By purchasing a treasury bond, someone is essentially lending money to the
government in exchange for fixed interest payments every six months. Once the bo
nd matures, the holder receives its face value.
Treasury bonds mature in a minimum of 10 years, with 10 year bonds being most co
mmon, although some mature in as much as 30 years. They are sold four times a ye
ar: in February, May, August, and October. Auctions of bonds are held by the Tre
asury, and individuals can also purchase bonds directly through the Treasury. Re
cipients can buy treasury bonds in a wide variety of denominations, with the max
imum allowable purchase being five million dollars worth of bonds, and purchaser
s will receive interest payments every six months until the bond matures.
Because treasury bonds are backed by the full faith and credit of the United Sta
tes government, they are a very highly rated security, making them an extremely
sound investment. The interest returns tend to be fairly low, and certainly lowe
r than more risky securities, but some people prefer to invest in T-bonds, as th
ey are called, because they are highly dependable.
The interest income from a treasury bond is only taxed on the federal level, not
on the state or local level. This can be a distinct benefit for people who are
receiving large interest payments, and is another reason some people like to inv
est in treasury bonds. The tax forgiveness is once of the incentives offered by
the Treasury to encourage people to buy T-bonds.
The interest rate on a treasury bond tends to be less than thrilling, which lead
s many investors to purchase these bonds in large quantities to ensure large int
erest payments. This can make investment in treasury bonds prohibitive for peopl
e without a great deal of money, as they may lack the funds necessary to purchas
e enough bonds to make the interest payments worthwhile. However, treasury bonds
can also be used as a savings instrument, as the face value of the bond will be
paid out when it matures, generating a burst of funds which may be useful. Pare
nts, for example, might choose to purchase T-bonds yearly so that their children
will have money for college.

Let s imagine for a minute that you want to borrow $5000 from your rich Uncle Wi
seGEEK. After the initial shock wears off, he agrees to loan you the money. But
before any exchange can take place, your uncle wants the specific repayment term
s spelled out in writing and signed by both parties. This document would be cons
idered a promissory note and is legally binding. No matter where you go or what
you do with the money, Uncle WiseGEEK can always prove the existence of the orig
inal loan.
A promissory note, often shortened to note , should provide specific details on
the amount of the original loan, known as the principal, the repayment schedule
and any applicable interest rate. It is not unusual for a promissory note also
to contain details such as grace periods or penalties for defaulting. Although e
ither party may draw up a promissory note, it s usually in the best interest of
the lender to make sure all of the important elements are included. Once both pa
rties sign a promissory note, the precise terms of that contract are the ones wh
ich will be enforced during any future legal proceedings.
A promissory note is not the same as an informal IOU. A personal IOU may acknowl
edge that a debt exists, but the specific repayment details may not be included.
Commercial lending companies often require borrowers to read and sign a very de
tailed promissory note before a loan can be deposited or processed. The borrower
should hold onto this note until the loan becomes due, since it contains import
ant information on interest rates and amount of the principal to be repaid.
Related topics
Promissory Note
Free Promissory Note
Legal Promissory Note
Installment Promissory Note
Mortgage Promissory Note
Promissory Note Contract
Sell Promissory Note
The production of a properly worded and signed promissory note is usually enough
to prevail in any legal proceeding against the borrower, but there are some exc
eptions. If the borrower can prove he or she signed the document under extreme d
uress, meaning under undue pressure from the lender, then a judge may rule the n
ote unenforceable. The borrower must sign a completed document, not merely place
his or her signature at the bottom of a blank page. A promissory note should no
t contain conditions which would be considered illegal elsewhere, such as an imp
ossibly high interest rate or additional penalties not spelled out in writing
Corporate bonds are debt instruments that are issued by corporations considered
to be publicly held. Generally, a corporate bond is issued as a means of raising
necessary funds to allow the company to engage in an expansion project, or to a
ddress other corporate projects that are anticipated to increase the profitabili
ty of the company over the long term. The expectation is that the corporation wi
ll begin to benefit from the project before the bond issue matures, allowing the
company to comfortably honor both the face value of the bond and any accrued in
terest due to the bondholders.
In most areas of the world, a corporate bond is likely to pay a higher rate of i
nterest than bonds issued by local or national governments. However, it is impor
tant for the investor to note that the purchase of a corporate bond usually does
not allow for the interest generated by the bond to be tax exempt. Many example
s of the corporate bond include terms and conditions that allow for the issuance
of interest payments on an annual or semiannual basis, which must be accounted
for on annual tax returns.
Purchasing a corporate bond is usually accomplished through investment brokers.
However, it is also possible to acquire a bond issue from a secondary market as
well. In general, choosing to purchase the corporate bond through a broker will
mean paying the current par value associated with the bond. When purchasing the
corporate bond from a secondary market, the price may be higher or lower than th
e par value.
A third option is to invest in a mutual fund that focuses on the purchase of cor
porate bonds as part of the fund strategy. Investors who prefer to leave most of
the investigation into bond issues with the managers of the mutual fund often f
avor this approach. Assuming that the corporate bond or bonds selected for inclu
sion in the mutual fund are performing well, an investor will realize a signific
ant return.
The corporate bond can be a short term or a long term bond issue. There are exam
ples of a corporate bond that matures from one to five years, while other exampl
es may be structured to mature anywhere from thirty to forty years from the date
of issue. Various rates of maturation will present advantages to the investor,
depending on what the investor hopes to gain from the purchase of the bond.