Bonds . Bonds used in finance are financial instruments reflected in a written document that stipulates that the issuer owes the holder a certain amount for which they will pay certain interests, in addition to the principal, on certain pre-agreed dates. This type of bond is usually issued by large companies and by governments, as a means of issuing public debt that allows them to finance themselves in the short and long term.
The term bonds is usually used to reflect a short-term debt issue, while for the medium-term debt issues the term promissory note is used, and the long-term term is that of obligation. Debt issuances are made by going to financial intermediaries, which can be banks or any other type of brokers (financial intermediaries who work on behalf of others). The buyer of the bonds can keep them and collect the agreed interest, or sell it to a third party. Bonds issued by companies are usually backed by a mortgage on company property in some cases, but in others they are backed by other types of pledged or pledged guarantees.
The bonds issued by the State are not guaranteed, but the buyer feels secure knowing the collecting capacity of the governments; however, the success of the issue depends on the confidence investors have in the stability of the issuing government.
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- 1 Definition
- 2 Features
- 3 Classification of bonds
- 1 According to the character of the property
- 2 According to the nature of your guarantee
- 3 According to the main payment
- 4 Stages in the bond issuance process
- 5 Source
- It constitutes a portion of an obligation.
- It is a document in which the credit that its holder has against the issuer is shown.
- It is a promise to pay the principal and interest on the loan on a given date.
- It represents a promise to pay interest together with the principal on a given date. These interests are reflected in the deed of issue based on a nominal rate on the value of the issue.
- It represents an aliquot part of a debt.
- They can have mortgage assets as collateral.
- You have the right to receive interest periodically in accordance with the provisions of the deed of issue, whether or not there are profits.
- It is paid at maturity and in effect of payment of the bondholders, they can request the auction of the goods that guarantee it.
- The bonds accrue interest from their issue.
- The bonds are sold at face value, above or below face value.
The premium occurs bonds when the nominal rate is above the market rate so at the time of sale of bonds, they sell at a higher value than face value trying to bring its nominal rate to the rate market.
According to the character of the property
- Registered bonds: those in which the owner of the document is specified, so the payment of interest is made to the owner of the document.
- Non-nominal bonds: those in which the holder of the document is not specified, therefore the payment of interest and principal is made to the person presenting the document.
According to the nature of your guarantee
- Mortgage bonds: they are backed with an amortization fund.
- Guaranteed bond variant: they are backed with a amortization fund.
- Unsecured bonds: there is no endorsement in this regard.
According to the main payment
- Ordinary or Common Bonds: those that are issued only once, all maturing on the same date.
- Bonds in series: they represent a modality of the main payment to the extent that periodically a fraction of the amount of the principal is withdrawn from circulation , which causes it to decrease on the due date.
- Redeemable or redeemable bonds: it is an option of the issuing entity to withdraw bonds in circulation before the maturity date from the variants that are presented with the nominal rate since there can be a market rate below it.
- Convertible bonds: option of the bondholder in which, at the moment in which the issuing entity decides, it can exchange the bonds for shares or other values of the entity.
Stages in the bond issuance process
- Board of Directors: preliminary bond issue agreement.
- General Meeting of Shareholders: the issue is approved.
- Issuance project: Nominal Value, Nominal Rate- Interest payment date-maturity of the principal.
- Legal representative: (Trustee).
- Issuance Deed
- Bond Sale.