What are bonds and what you need to know

What is a bond?

Bonds are securities that acknowledge the debt obligations of a business or government to the holder.

The bond issuer can be a business (called corporate bonds) or a public government organization such as: the State Treasury (called treasury bonds) or the government (called public bonds or government bonds).

Any individual, business or government can buy a bond or bondholder. The bond may have the name of the bondholder written on it, called a registered bond, or it may not have the name written on it, called a bearer bond.

The person who lends money to the bond issuer is called the bondholder. The bondholder is not responsible for the borrower's effective use of the loan. The issuer must be obligated to repay the debt as committed in the loan contract.

What are bonds and what you need to know - 1 — Bonds are securities that acknowledge the debt obligations of a business or government to the holder.

Bonds provide income in the form of interest, which is a fixed, regular income and does not depend on business results.

The nature of bonds is debt securities, so in case of dissolution or bankruptcy of a company, the company's shares must first be paid to the bondholders as a mandatory obligation. After paying the bond debt, the shares are distributed to the shareholders.

What types of bonds are there?

Government bonds are issued by the Ministry of Finance to raise capital for the state budget or programs and projects within the scope of state investment. Government bonds usually have low interest rates but are the least risky compared to other types of securities.

Local government bonds are issued by the People's Committees of provinces and cities with a maturity of one year or more to raise capital for local investment projects and works. The source of funds to repay bonds is usually local budget revenue.

Corporate bonds are issued by enterprises (including banks) to meet capital needs on the principle of self-borrowing, self-repaying, and self-responsibility for debt repayment ability.

Do bonds need collateral?

There are two types of bonds: Secured bonds are bonds in which the issuing organization uses assets such as real estate, machinery and equipment, and stocks to secure the issuance. Usually, the collateral has a market value greater than the face value of the issued bond. In case the issuing organization becomes insolvent, the bondholder has the right to sell the collateral to recover the outstanding debt.

Unsecured bonds have the opposite nature and therefore carry a higher level of risk.

Hopefully the above information has helped you better understand what bonds are as well as basic information about bonds.

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