Floating-rate bonds | 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. |
Cash rate | Rate Aus banks charge each other for overnight loans |
Spread | 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 |
Unsecured debt | 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 |
Collateral | The specifi c assets pledged to secure a loan. |
Mortgage bonds | A bond secured by real estate or buildings |
Collateral trust bonds | A bond secured by financial assets held by a trustee |
Debentures | 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. |
Convertible bond | A bond that gives investors the option to convert their bonds into the issuer’s common stock. |
Exchangeable bonds | Bonds issued by corporations which may be converted into shares of a company other than the company that issued the bonds. |
Callable | Bonds that the issuer can repurchase from investors at a predetermined price known as the call price |
Call price | The price at which a bond issuer may call or repurchase an outstanding bond from investors |
Putable bonds | Bonds that investors can sell back to the issuer at a predetermined price under certain conditions |
Sinking fund | 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 |
Protective covenants | Specify requirements that the borrower must meet as long as bonds remain outstanding |
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https://www.speedwell.com.au
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