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 Tbond 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

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

 

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.

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 Tbond 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.