Bond Types

Discount notes are short term debt instruments which are issued at a discount to par and mature at par and have no periodic interest payments.  Discount notes offer maturity ranges from overnight to 360 days with the exclusion of terms to maturity which corre

A collateralized debt obligation (CDO) is a specific type of asset backed security that is created through the securitization of various fixed income products.  The basic purpose of this security is to hold assets as collateral and then sel

What is a Credit Default Swap (CDS)?

A credit default swap (CDS) is a credit derivative product which allows the holder of a fixed income security to transfer the credit risk portion associated of that security on to a counterparty for a fee.  A credit default swap is basically an insurance premium that a security holder pays to guarantee themselves

What are Mortgage Backed Securities (MBS)?

Large banking institutions and government sponsored entities (GSE's) purchase mortgages, which abide by certain standards, and package them together into securities which investors can buy. These securities are referred to as mortgage backed securities, or MBS.

Municipal bonds, aka. "munis", are issued by state and local governments, utility companies, hospitals, and even universities. These entities raise money to pay for new schools, road improvements, sewer maintenance, etc. The interest payments made to the bond holder is created by the underlying business revenues that are made by these entities.

What are Corporate Bonds?

A corporate bond is a bond issued by major corporations and can be divided into five major groups: industrials, transportations, utilities, banks and other finance companies, and finally international. Bonds issued from the industrial sector would include manufacturing, mining, and retail oriented companies.

What are Convertible Bonds?

A convertible bond is a security, typically ranging between 25 and 30 years in term, that gives its' owner the right to acquire the issuers common stock directly from the issuer rather than purchasing it in the open market.

What is Commercial Paper?

A corporation may issue bonds or equity to fulfill their long term capital needs; however, corporations are also in need of short term funds as well. As an alternative to bank borrowing, corporations may issue commercial paper which are basically short term, unsecured notes issued in the open market for immediate financing needs.

CALLABLE BOND DEFINITION

A callable bond, or redeemable bond, gives the bond issuer the right to purchase the bond back from the bond holder before the maturity date of the bond through an embedded call option.

What is an Inflation Protected Security?

TIPS, or Treasury Inflation Protected Securities were introduced into the bond market in early 1997.  TIPS are issued by the United States government and therefore have no default risk associated to them.  As with Treasury bonds, TIPS are issued through the

What is a Treasury Bond?

Treasury bonds, or T-Bonds are the most well known type of bond. They are issued by the United States government and therefore considered without risk. Treasury bonds are issued in $1,000 increments and pay semi-annual coupon payments.

What are Asset Backed Securities (ABS)?

Similar to the way mortgage backed securities are structured, asset backed securities are also collateralized by assets and have been structured as pass through securities which can have multiple classes, or tranches. 

What are High Yield Bonds?

Once considered a risky proposition, the market for high yield bonds has grown to a large, yet stable market for availing capital to noninvestment-grade companies who do not meet the credit rating guidelines established by S&P, Moody's, and Fitch.