What Does Securities Bond Mean?
A securities bond is a type of debt security in which an investor loans money to a lender for a set period of time at either a fixed or variable interest rate. Governments and businesses can use a securities bond as a way to raise funds to finance a wide variety of projects and activities. They issue these bonds directly to investors instead of getting loans from a bank.
The term securities bond may also be known as a bond or fixed-income securities.
Insuranceopedia Explains Securities Bond
The issuer of the bond, also called the indebted entity, issues a contract bond and pays the interest rate in return for loaning funds to the issuer. The issuance price of the bond is set at par value (face value) of $100 or $1000 per individual bond.
Investors who purchase bonds from issuers are lending money on a promise that they will receive payments at certain intervals as well as have their principal investment returned on a stated date in the future.
The bond earns interest depending on the actual market price, which is affected by several factors, such as the length of time until maturity date and credit quality of the bond issuer. Since the fixed-rate interest is imposed on bonds, the market price of the bond fluctuates.
For example, if the interest rate of the economy is at 5% at $100 par value with a 5% annual coupon, the bondholder will be credited $5 in interest income every year regardless of if the economy interest rates drop, making it an attractive option for investors.