Global debt markets are three times larger than equity markets. As such, there are many ways in which we can classify bonds. Classification by Type of Issuer The three bond market sectors are government and government-related sector, corporate sector, and…

Contingency provisions allow for some conditional actions. They grant the issuer and/or the bondholder rights but no obligations to exercise specified actions. Types of bonds with embedded options are callable, putable, and convertible bonds. Callable Bonds Callable bonds give the…

Call Provisions A call provision gives the issuer the option to repurchase the bonds before maturity. The issuer repurchases the bonds at the market price, at par, or at a specified sinking fund price, whichever is the lowest. Special Bond…

Plain Vanilla or Bullet Bonds The most common payment structure is a plain vanilla bond with periodic, fixed coupon payments and a lump-sum payment of principal at maturity. Plain vanilla bonds are very common for government and corporate bond issuances….

Fixed-income securities depend on laws and regulations of the place of issuance, where bonds are traded, and the holders of bonds. National and Foreign Bonds National bonds are issued and traded in a country. Domestic bonds are issued by local…

Covenants are legally enforceable rules that parties (borrowers and lenders) agree on. The purpose of covenants is to protect bondholders by providing some assurance on what the bond issuer will and won’t do over the bond’s life. There are two…

Bond Indenture A bond indenture is a legal document that outlines all the parameters of the bond issue, such as the par amount, issuer, coupon rate, security pledge, and the rights of bondholders. When analyzing a bond, it is important…

A fixed-income security is a financial obligation that pays a fixed amount of interest—in the form of coupon payments—to investors at specified points in the future. The payments are anchored on contractual guidelines and must be made. This is, in…