Bonds that make coupon payments that vary through time. The coupon payments are usually tied to a benchmark market interest rate
also called variable-rate bonds
provide some protection against interest rate risk
If market interest rates increase, then eventually, so do the bond’s coupon payments
Makes borrowers future cash obligations unpredictable
Risk is transferred from buyer to issuer
London Interbank Offered Rate (LIBOR)
The interest rate that banks in London charge each other for overnight loans. Widely used as a benchmark interest rate for short-term fl oatingrate debt.
Rate Aus banks charge each other for overnight loans
The difference between the rate that a lender charges for a loan and the underlying benchmark interest rate
Also called the credit spread
to the benchmark interest rate, according to the risk of the borrower
Lenders charge higher spreads for less creditworthy borrowers
Capital indexed bonds / inflation linked bonds
Issued by Aus govt, face value changes each year with inflation
Debt instruments issued by an entity backed only by faith and credit score of borrowing company
Subordinated unsecured debt
Debt instruments issued by an entity which is backed only by the credit of the borrowing entity which is paid only after senior debt is paid
The specifi c assets pledged to secure a loan.
A bond secured by real estate or buildings
Collateral trust bonds
A bond secured by financial assets held by a trustee
Usually backed by property
Equipment trust certificates
A bond often secured by various types of transportation equipment
Pure discount bonds
Bonds that pay no interest and sell below par value. Also called zero-coupon bonds.
A bond that gives investors the option to convert their bonds into the issuer’s common stock.
Bonds issued by corporations which may be converted into shares of a company other than the company that issued the bonds.
Bonds that the issuer can repurchase from investors at a predetermined price known as the call price
The price at which a bond issuer may call or repurchase an outstanding bond from investors
Bonds that investors can sell back to the issuer at a predetermined price under certain conditions
A provision in a bond indenture that requires the borrower to make regular payments to a third-party trustee for use in repurchasing outstanding bonds, gradually over time
Specify requirements that the borrower must meet as long as bonds remain outstanding