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CHAPTER 11
BOND FUNDAMENTALS
I. Basic Features of a Bond
A. Public Bonds – Long-term, fixed-obligation debt securities packaged in convenient,
affordable denominations for sale to individuals and financial institutions
1. Payments: interest (periodically) and principal at maturity to the holder of record
B. Bond Characteristics
1. Intrinsic Features
a. Coupon – the income that the bond investor will receive over the life (or holding
period) of the issue
2. Types of Issues
a. Secured (senior) bonds – backed by legal claim on some specified property
For example, mortgage bonds, equipment trust certificates, etc.
3. Indenture Provisions
4. Features Affecting a Bond’s Maturity
a. Call features (freely callable, non-callable, deferred call, call premium)
b. Nonrefunding provision
c. Sinking fund
C. Rates of Return on Bonds
II. The Global Bond Market Structure
A. Size and Distribution (Exhibit 11.1)
B. Bond Ratings
III. Types of Bond Issues
A. Domestic Government Bonds
1. Canada
B. Government Agency Issues
1. United States
2. Japan
C. Municipal Bonds
D. Corporate Bonds
1. Corporate Bond Market
a. Mortgage Bonds
b. Equipment Trust Certificates
c. Collateral Trust Bonds
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2. Japanese Corporate Bond Market
a. Regulation (Kisaikai)
3. U.K. Corporate Bond Market
a. Debentures
b. Unsecured loans
c. Convertible bonds
4. Eurozone Corporate Bond Market
E. International Bonds
1. United States
a. Eurodollar bonds
b. Yankee bonds
2. Japan
a. Samurai bonds