Concept in Definition ABC

A bond consists of a debt security, either fixed or variable income, which is issued by a State, a government, a company or Bank.

Bonds are called debt securities that are issued by national, regional or local governments, or by companies, banks or organisms international financial institutions, through which the transmitter undertakes to return the capital of the bond together with the interest produced by it.

The owner of the bond is called "holder", or "bondholder". The price of the bonds can be calculated as the payment flows and the interest rate are updated.

There are different types of bonds that are frequently used by individuals and entities in all parts of the world. Among them, we can highlight the exchangeable bonds (those that imply that they can be exchanged for existing shares, without causing capital increase or reduction of shares), convertible bonds (which give the holder the possibility of exchanging it for new shares at a predetermined price), zero coupon bonds (these do not pay interest for their entire life but support the same value of

amortization, although its price is lower than nominal value), government bonds (which are related to the public treasury of a country or nation), the strips (that is, bonds that can be segregated into different payments that distinguish principal and interest capital to carry out a segmented negotiation), perpetual debt bonds (those that never return the principal or face of the principal bond, but pay interest regularly and indefinitely), bonds garbage (Those named like this because they constitute titles of high risk but low rating).

In terms of risks, one can distinguish the market risk (which implies that the price of the bond varies according to interest rates) and the credit risk (to the extent that the issuer does not meet the payments derived from the bond).

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