Securities Bond
What Does Securities Bond Mean?
A securities bond is a type of debt security in which an investor lends money to a borrower for a specified period at either a fixed or variable interest rate. Governments and businesses use securities bonds as a means to raise funds for financing various projects and activities. These bonds are issued directly to investors rather than through bank loans.
The term “securities bond” may also be referred to as a bond or fixed-income security.
Insuranceopedia Explains Securities Bond
The issuer of the bond, also known as the indebted entity, issues the bond and agrees to pay interest in exchange for receiving funds. The issuance price of the bond is typically set at its par value (face value), which is usually $100 or $1,000 per individual bond.
Investors who purchase bonds from issuers are lending money with the understanding that they will receive periodic interest payments and have their principal investment returned on a specified future date.
The bond earns interest based on the market price, which can fluctuate due to factors such as the time remaining until the maturity date and the credit quality of the bond issuer. Since bonds generally have a fixed interest rate, their market price tends to fluctuate accordingly.
For example, if the prevailing interest rate in the economy is 5% and the bond has a $100 par value with a 5% annual coupon, the bondholder will receive $5 in interest income every year, regardless of whether the overall interest rates drop. This makes the bond an attractive option for investors.
