Bonds Types
Continuing last articles about bonds, today I’d like to discuss it in more easy to understand view. Lets start it with definitions. Bond is a medium-term debt securities which are transferable long that contains a promise from the issuing party to pay compensation in the form of interest in a certain period and pay off the principal debt at a specified time to the purchaser of the bonds.
Bonds has several different types, namely as below:
1) Judging from the publishers:
a) Corporate Bonds: Bonds issued by companies, either in the form of state-owned enterprises (SOEs), or private entities.
b) Government Bonds: Bonds issued by the central government.
c) Municipal Bond: Bond issued by local governments to finance projects related to public interest (public utility).
2) Judging from the interest payment systems:
a) Zero Coupon Bonds: Bond does not make periodic interest payments. However, interest and principal payable at maturity at the same time.
b) Coupon Bonds: bonds with coupons that can be cashed periodically in accordance with the provisions of the publisher.
c) Fixed Coupon Bonds: bonds with a coupon rate of interest that have been established before the bidding in the primary market and will be paid periodically.
d) Floating Coupon Bonds: bonds with a coupon interest rate is determined before that time period, based on a reference (benchmark) such as average time deposit (ATD) is a weighted average interest rate of deposits from private banks and the government.
3) Viewed from the right of redemption / option:
a) Convertible Bonds: Bonds which entitles the bondholders to convert bonds into a number of shares owned by the publisher.
b) Exchangeable Bonds: Bonds which entitles the bondholders to exchange shares of the company into the number of shares of the issuer’s affiliated companies.
c) Callable Bonds: Bonds which entitles the issuer to buy back the bonds at a specified price over the life of the bonds.
d) Putable Bonds: bonds that give investors the right to require the issuer to buy back the bonds at a specified price over the life of the bonds.
4) In terms of guarantees or collateral
a) Secured Bonds: Bonds are secured by a specific property of the issuer or with any other third party guarantees. In this group, which includes:
- Guaranteed Bonds: Bonds are interest and principal repayment guarantee from a third party with guarantee
- Mortgage Bonds: Bond interest and principal repayment is secured by collateral mortgages on the property or fixed assets.
- Collateral Trust Bonds: Bonds are secured by securities owned by the publisher in its portfolio, for example, shares owned subsidiary.
b) Unsecured Bonds: Bonds are not secured by a specific property but the property secured by the issuer in general.
5) In terms of nominal value
a. Conventional Bonds: Bonds are commonly bought and sold in a single nominal, $ 1 billion per one lot.
b. Retail Bonds: Bonds that are traded in units of small nominal value, both corporate bonds and government bonds.
6) In terms of the yield calculation:
a. Conventional Bonds: Bonds are to be reckoned by using the coupon system.
b. Shariah Bonds: Bond yield calculation using the calculation for results. In this calculation there are two kinds of Islamic bonds, namely:
- Bonds Mudharabah Sharia is Islamic bonds that use profit-sharing agreement so that the income earned on bond investors are aware of income earned after the issuer.
- Syariah Ijarah bonds are Islamic bonds that use lease contract so that the coupon is fixed, and can be known / considered since the beginning of bonds issued
Next articles, lets discuss about bonds characteristic.