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BondA debt instrument, issued by a borrower and promising a specified stream of payments to the purchaser, usually regular interest payments plus a final repayment of principal. Bonds are exchanged on open markets including, in the absence of capital controls, internationally, providing a mechanism for international capital mobility.BondThe generic name for a tradable loan security issued by governments and companies as a means of raising capital.The bond guarantees its holder:repayment of capital at a future specified date (the maturity date)a fixed rate of interest (also known as the coupon)Government bonds are known as gilts or Treasury Stock.Bonds offer certainty of income, but may fail to keep pace with inflation.As far as the capital is concerned, you only know exactly how much your bond is worth if you plan to hold it to maturity (when you will be paid back the face value). But in the time between issue and maturity, a bond's value can be as volatile as a share, and if you plan to sell before maturity you run the risk of capital erosion. In general:Bond prices fall when bank interest rates go up (because the interest rate rise attracts money out of bonds into cash)Fear of rising inflation will cause bond prices to fall, because investors worry that bonds will not bring enough income to keep pace with inflationThe German and American bond markets have an effect on UK bond prices, because they are competing for the same institutional capital.Similar MatchesDiscount bondDiscount bondDebt sold for less than its principal value. If a discount bond pays no coupon, it is called a zero coupon bond. Lehman Brothers Government or Corporate Bond IndexLehman Brothers Government or Corporate Bond IndexA benchmark index made up of the Lehman Brothers® Government and Corporate Bond indexes, including U.S. government Treasury and agency securities as well as corporate and Yankee bonds. Accrual bondAccrual bondA bond on which interest accrues but is not paid to the investor during the time of accrual. The amount of accrued interest is added to the remaining principal of the bond and is paid at maturity. Bond yieldBond yieldYield calculations on bonds aim to show the return on a gilt or bond as a percentage of either its nominal value or its current price. There are three types of yield calculation that are commonly used:Nominal Yield (also known as 'flat yield')This is calculated by dividing the annual income on the bond by its nomina or 'par' value. So the nominal yield on a £100 bond which pays 5% interest per year is 5/100 x 100 = 5%.Current or 'Running Yield'This is calculated by dividing the annual income on the bond by its current market price. So if the market price of the £100 bond dropped to £95, the current yield on the bond at that time would be 5/95 x 100 = 5.36%. Note that as the market price of a bond drops, its yield goes up.Redemption Yield'The Redemption Yield shows what the total return on a bond would be if held to its maturity date. It reflects not only the interest payments a bondholder will receive, but also the gain/loss he will make when it matures. The income element is the same 'current yield' calculation performed above. The gain/loss element is calculated by taking the difference between the current market price and the nominal value of the bond (e.g. in our example 100 - 95 = 5), dividing it by the number of years til maturity (assume 5 years for simplicity, so 5/5 = 1) and then dividing that figure by the current price of the bond (1/95 x 100 = 1.05%) The yield to redemption is the sum of the current yield (5.36%) and the capital yield (1.05%) = 6.41%. Long bondLong bondIn the USA, a bond with a maturity of ten years or more.The US 30 year Treasury bond. Further SuggestionsSeries HH bondPositive covenant (of a bond) Hospital revenue bond Public purpose bond Perpetual bond Completion bonding corporate bond Reorganization bond Revenue bond Bond swap Treasury bonds Sour bond Story stock or bond Long bonds Series E bond bond rating Gold bond short bond Payment in kind (PIK) bond Term bonds Companion bonds Bond covenant Bond equivalent yield Inactive stock or bond Foreign bond market |
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