Tuesday, March 31, 2009

Bond Glossary

The Bond market is currently abuzz and is attracting heavy investments from investors because of the safety and capital preservation they offer. Bonds are similar to bank deposits with a few minor differences.

Let us have a look at some of the common terms used in the Bond Markets

Convertible Bonds:
These can be converted into the shares of the issuing company at a particular time.

Coupon Rate:
This is the interest received on the principal amount invested by us. It is generally paid half yearly or annually.

Current Yield:
It is the annual rate of return on the bond’s price

Face Value:
This is also called the Par value. This is the maturity amount that the bond issuer agrees to pay the investor

Default Rate:
It is the percentage of companies under a particular rating that have defaulted in making payments to its investors.

Interest Rate Risk:
This is the risk of change in price of the bond due to interest rate fluctuations in the market. Interest rates and bond prices are inversely related.

Yield to Maturity:
This is the rate of return that you get if you hold the bond till maturity. The return includes coupon payments as well as the maturity value. Change in yield reflects change in price of the bond and they are inversely related.

Yield Spread:
This is the difference between the yields of two bonds. Generally a bond’s yield spread is determined by calculating the difference between the bond’s yield and the yield on government securities.

Zero Coupon Bonds:
These are bonds that do not pay any interest. Instead, these bonds are issued at a discount and the difference between the face value and the issue price is the investors gain.

The next article would be on the aspects to be checked before investing in Corporate Bonds.

Happy Investing!!!!!


  1. Hi Anand,

    It would also be useful to elaborate on 'Duration' and 'Convexity'.

    Looking forward to reading more of your blogs.


  2. Dear Anand Ji,


    Wonderful Blogs, u always post.Plz focus on some more topics of Share market...i.e. how to choose best broker,which shares are reliable to buy etc.& how portfolio can be made....
    Really appreciate urs knowledge...


    Sanjiv chopra, New Delhi


© 2013 by www.anandvijayakumar.blogspot.com. All rights reserved. No part of this blog or its contents may be reproduced or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of the Author.


Popular Posts

Important Disclaimer

All the contents of this blog are the Authors personal opinion only and are not endorsed by any Company. This website or Author does not provide stock recommendations. The purpose of this blog is to educate people about the financial industry and to share my opinion about the day to day happenings in the Indian and world economy. Contents described here are not a recommendation to buy or sell any stock or investment product. The Author does not have any vested interest in recommending or reviewing any Investment Product discussed in this Blog. Readers are requested to perform their own analysis and make investment decisions at their own personal judgement and the site or the author cannot be claimed liable for any losses incurred out of the same.