Bond

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1. Securities - debt - capital markets.

In the context of capital markets, a bond is a formal longer-term debt investment, usually tradeable, issued by a borrowing organisation and bought by a lender (= debt investor).


The bond is usually administered by a trustee.

Bonds typically require the issuer to repay the amount borrowed plus interest over a designated period of time.

The current market yield on the bond is both (1) the market rate of return to the debt investor and (2) the pre-tax market cost to the issuer of debt capital.

Issuers of capital market bonds include a wide range of corporate and public sector entities, including central governments.


2. Bank and building society deposits - retail - savings bond.

The term bond is also used by banks and building societies for fixed term savings accounts, with fixed rates of interest for the term.

The interest rate payable to the retail customer is generally higher than for more flexible savings accounts.

Savings bonds are not tradeable.


3. Trade finance - credit support.

In trade finance, a bond is an instrument issued by a bank or an insurance company, in favour of a buyer, on behalf of a supplier, as additional assurance to the buyer that the supplier will perform its obligations under the supply contract.

Such a bank bond or insurance company bond will be supported by an indemnity issued by the supplier in favour of the bank or insurance company.


Examples include advance payment bonds, bid bonds, customs bonds, performance bonds and retention bonds.

In this context, the terms "bond" and "guarantee" are often used interchangeably.


4. Risk management - guarantee.

A guarantee provided by one party to another.


5. Risk management - collateral.

An amount of money provided as security for a guarantee.


See also

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