Bond

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1. Securities - debt.

In the context of securities, 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 bonds include a wide range of corporate and public sector entities, including central governments.


2. 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.


3. Risk management - guarantee.

A guarantee provided by one party to another.


4. Risk management - collateral.

An amount of money provided as security for a guarantee.


See also

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