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bond,in finance, usually a formal certificate of indebtedness issued in writing by governments or business corporations in return for loans. It bears interest and promises to pay a certain sum of money to the holder after a definite period, usually 10 to 20 years. Security is usually pledged against a bond; unsecured bonds are regarded as a long-term obligation on the capital of the issuing body. Some bonds are convertible upon maturity into the stock of the issuing company. One method used to retire bonds is the sinking fundsinking fund,
sum set apart periodically from the income of a government or a business and allowed to accumulate in order ultimately to pay off a debt. A preferred investment for a sinking fund is the purchase of the government's or firm's bonds that are to be paid off.
..... Click the link for more information. ; in such a case the issuing body buys back some of its bonds each year and holds them itself, applying the interest to the fund. The entire bond issue, most of which the firm has already acquired, is then retired on maturity. In the case of serial bonds, part of the issue is called in and paid for in full each year. Bonds were sold by the U.S. government to finance both World Wars and are still an important money-raising device. Government bonds are backed by the full faith and credit of the government issuing them, including its taxing power, and sometimes also by specifically designated security. Bonds are usually bought by those wishing conservative investment. A junk bond has a risky credit rating because it is issued by companies without an established earnings history or with a questionable credit history. Junk bonds have increasingly been used to help finance the purchase of companies, especially in leveraged buyoutsleveraged buyout,
the takeover of a company, financed by borrowed funds. Often, the target company's assets are used as security for the loans acquired to finance the purchase.
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See L. A. Jones, Bonds and Bond Securities (4th ed., 4 vol., 1935–50); T. R. Atkinson, Trends in Corporate Bond Quality (1967); A. Rabinowitz, Municipal Bond Finance and Administration (1969); H. D. Sherman and R. E. Schrager, Junk Bonds and Tender Offer Financing (1987); D. R. Nichols, The Personal Investor's Complete Book of Bonds (1988).
bull header bond
bull stretcher bond
Flemish diagonal bond
a security that conveys to its bearer the right to income computed at a fixed percentage rate. The entity issuing the bond assumes the obligation to redeem it over a prescribed period of time by paying income to the bearer of the bond, either through winnings allocated in special lottery drawings or through the reimbursement of coupons.
In the USSR, the right to issue bonds for domestic borrowing belongs solely to the state. The bond embodies a special form of obligation under civil law, one by which the state is the debtor and the citizen placing money at the disposal of the state is the creditor. The bonds currently in circulation are 3 percent lottery bonds, issued for a 20-year term in 1966. Income is paid to bondholders in the form of lottery winnings. The bonds are freely bought and sold by savings banks; their selling prices are set by the Ministry of Finance of the USSR, and they are purchased at face value. Various transactions relating to trusts, gifts, and bequests may also be carried out using bonds. Bonds may be presented for redemption throughout the period in which they are in force and during an additional grace period of 18 months. On expiration of this period, bonds that have not been presented for redemption lose their force. Bonds and cash winnings derived from them are tax exempt.
In the capitalist countries, bonds are issued both by joint-stock companies and by the state. As a form of paper security, bonds circulate freely through the capital market at a quoted price that is determined by their yield, by the general interest rate, and by overall factors of supply and demand. The state uses the capital mobilized through the sale of its bonds primarily to cover budget deficits that result from enormous nonproductive expenditures, above all expenditures on the arms race. The debt formed from the sale of bonds and the payment of interest is repaid primarily through taxes that are collected for the most part from the working people. The profits of joint-stock companies provide the source of the interest paid on their bonds.
O. I. LAVRUSHIN and A. IU. KABALKIN