Category: Business – This Explainer

Series I savings bonds are nonmarketable U.S. government savings bonds with a composite rate combining fixed and inflation components. This explainer covers rate resets, compounding, purchase limits, the one-year lockup, early-redemption penalty, 30-year interest period, taxes, registration, and differences from marketable TIPS.

Bond credit ratings are opinions from rating agencies about an issuer’s or security’s creditworthiness. This explainer covers rating scales, investment-grade thresholds, outlooks and watches, issuer versus issue ratings, collateral and seniority, upgrades and downgrades, market pricing, conflicts, and why ratings do not replace independent analysis.

Investment-grade bonds are debt securities rated above the commonly used speculative-grade threshold. This explainer covers rating categories, issuer quality, credit spreads, default risk, interest-rate exposure, downgrade and fallen-angel risk, liquidity, covenants, sector differences, and why investment grade does not mean risk-free.

High-yield bonds are corporate debt rated below investment grade and generally offer higher yields for greater credit risk. This explainer covers speculative-grade ratings, credit spreads, default and recovery risk, refinancing, covenants, call features, liquidity, economic sensitivity, fallen angels, and why a high coupon is not the same as a high return.

A bond coupon rate is the contractual annual interest rate applied to the security’s face value. This explainer covers coupon payments, payment frequency, fixed and floating rates, zero-coupon debt, current yield, yield to maturity, price premiums and discounts, reset formulas, day-count conventions, and why coupon rate is not an investor’s return.

Accrued interest is the coupon interest earned between the last payment date and a bond trade’s settlement date. This explainer covers buyer-to-seller compensation, day-count conventions, settlement, clean and dirty prices, coupon entitlement, record dates, ex-interest trading, defaulted bonds, and why quoted price can differ from the cash paid.

Clean and dirty bond prices describe whether accrued coupon interest is included in a quoted amount. This explainer covers market quotations, full settlement value, accrued-interest calculations, coupon-date resets, chart interpretation, yield comparisons, distressed-bond exceptions, and why a trade confirmation may show a different cash total from the displayed bond price.

Bond convexity describes the curvature in the relationship between a bond’s price and yield. This explainer covers duration’s linear estimate, positive and negative convexity, larger rate moves, coupon and maturity effects, callable and mortgage-backed bonds, portfolio hedging, model assumptions, and why convexity does not eliminate credit or liquidity risk.

A bond ladder is a portfolio of individual bonds with maturities spread across scheduled intervals. This explainer covers rung construction, reinvestment, cash-flow matching, interest-rate risk, credit diversification, calls, transaction costs, minimum denominations, inflation, tax considerations, and differences between a ladder and a bond fund.

A puttable bond gives investors a contractual right to require redemption before maturity on specified dates and terms. This explainer covers put dates and prices, notice rules, investor protection when rates rise or credit weakens, yield tradeoffs, valuation, liquidity, issuer funding pressure, taxes, and why the option is only as reliable as the issuer.

Secured and unsecured bonds differ in the assets supporting repayment. This explainer covers collateral, liens, debentures, claim priority, guarantees, collateral valuation, covenant protection, bankruptcy recovery, negative pledges, refinancing, and why secured status does not guarantee full repayment.

Senior and subordinated debt occupy different positions in a borrower’s repayment hierarchy. This explainer covers contractual and structural subordination, secured versus unsecured status, holding-company debt, payment blocks, intercreditor terms, recovery rates, bank capital instruments, higher yields, and why senior does not always mean secured.