According to the characteristics, it can be divided into two types: guaranteed and unsecured. Among them, unsecured bonds are called bonds.
Supplementary information:
Both are debt instruments raised by enterprises to improve cash flow.
Similarities and differences:
(1) bond bond
Between the issuer and the investor, when the investor lends money to an institution, the bond exercises the borrower's written promise to repay the loan on a specific maturity date.
Bonds are fixed-income securities and usually pay interest on a regular basis. They are considered as a safe investment, and the bond default risk of the government or high-rated companies is low.
The most important feature of bonds is IOU, which means I love you, but I owe you. Of course, the issuer owes investors, and the bond is a written commitment to ensure that the borrower repays the lender at the expiration of a specific period.
Bond is a kind of fixed income bond, which usually pays interest regularly and is regarded as a relatively safe investment method. The default risk of government or high-rated corporate bonds is low.
(2) Unsecured bonds/credit bonds
Bond is a debt instrument that is not guaranteed by physical assets or collateral. Bonds are only supported by the general reputation and reputation of the issuer. Like other types of bonds, credit bonds are also recorded in contracts. Bonds have additional risks and higher interest rates.
Bonds have no collateral. Bond buyers usually buy corporate bonds based on the belief that bond issuers are unlikely to default on repayment. An example of government bonds is treasury bonds or short-term treasury bonds issued by the government. Treasury bonds and short-term treasury bills are usually considered risk-free, because in the worst case, the government can print more money or raise taxes to pay for such debts.
Bond is a kind of debt instrument without physical assets mortgage or guarantee, which is only supported by the issuer's credit and goodwill. Like other bond types, debt is regarded as a contract. Bonds are also high-risk and high-return.
Buyers of such bonds usually think that companies or governments are unlikely to pay back the money. The above three US Treasury bonds are bonds and are generally regarded as risk-free bonds. In the worst case, this is a big problem. The government will print more money, or collect more taxes, and then pay back the money carelessly.
When bankruptcy occurs, the bondholder has the ownership of the secured assets; Bondholders have to try their luck in bankruptcy court, and they have to stand in line behind other bondholders.
Although unsecured bondholders are always smiling when they take interest, it is really different when the company faces bankruptcy liquidation. The holders of mortgage bonds directly sell the collateral and divide it in proportion. Can't we just watch the company go through the legal process of paying off debts and lick the residue after the priority creditors in the front row and other bondholders share the cake? Maybe there's not even residue left.
Companies can add some features to make bonds more attractive, such as convertible bonds; Create a sinking fund. These two characteristics reduce the risk of bondholders, thus reducing the coupon rate.
The risk sounds too great. Did you scare everyone away? Actually not, and in order to improve the attractiveness of unsecured bonds to investors, the company also provides other options, such as convertible bonds and sinking funds. These two models reduce the risk, and the benefits of natural compensation are also reduced.