Bond

Bonds are issued by the government or other public authorities, credit institutions, and companies, and are sold through banks. They enable the issuer to finance long-term investments with external funds. The total volume of a bond issue is divided into smaller amounts of at least €50. The most important features of a bond are its maturity date, the coupon (interest rate), and whether the interest rate is fixed or floating. The rights vested in a bond are stipulated by law, but are typically supplemented with additional terms and conditions.

Bonds can fall into one of the three following categories:

•  fixed-rate bonds (interest rate remains constant throughout the life of the bond)
•  floating-rate bonds (variable interest rate that is tied to a benchmark such as a money market index)
•  zero-coupon bonds (bond that does not bear interest as such, but is sold at a substantial discount from its face value; the bondholder receives the full face value at maturity).