Spread betting bond market
Bond Markets
In finance, a bond is a debt
security, in which the issuer owes the holders a debt and is obliged to
repay the principal and interest (the coupon) at a later date, termed
maturity. Other stipulations may also be attached to the bond issue,
such as the obligation for the issuer to provide certain information to
the bond holder, or limitations on the behavior of the issuer. Bonds
are generally issued for a fixed term (the maturity) longer than ten
years. U.S Treasury securities issued debt with life of ten years or
more is a bond. New debt between one year and ten years is a note, and
new debt less than a year-bill.
A bond is simply a
loan, but in the form of a security, although terminology used is
rather different. The issuer is equivalent to the borrower, the bond
holder to the lender, and the coupon to the interest. Bonds enable the
issuer to finance long-term investments with external funds. Debt
securities with a maturity shorter than one year are typically bills.
Certificates of deposit (CDs) or commercial paper are considered money
market instruments.
Traditionally, the U.S. Treasury
uses the word bond only for their issues with a maturity longer than
ten years, and calls issues between one and ten year notes. Elsewhere
in the market this distinction has disappeared, and both bonds and
notes are used irrespective of the maturity. Market participants
normally use bonds for large issues offered to a wide public, and notes
rather for smaller issues originally sold to a limited number of
investors. There are no clear demarcations. There are also "bills"
which usually denote fixed income securities with three years or less,
from the issue date, to maturity. Bonds have the highest risk, notes
are the second highest risk, and bills have the least risk. This is due
to a statistical measure called duration, where lower durations have
less risk, and are associated with shorter term obligations.