About loans and bonds

Bonds are designed as debt securities,

Bonds are designed as debt securities,

So that the buyer of bonds is formally a lender to the issuer of the loan. Bonds are standardized debt securities and therefore easily negotiable. Have you thought about borrowing money for bonds?

Financial institutions and companies can raise funds

Financial institutions and companies can raise funds

The state, municipalities, financial institutions and companies can raise funds by borrowing through the bond market. The individual bonds, which usually refer to a certain amount, such as USD 1,000, are part of loans, and are therefore called bond loans. When we buy a bond, we lend money, but unlike other forms of loan, the bonds can be traded in the market.

Like investing money in the bank, as a buyer of bonds, you will receive an interest rate to lend your money. When issuing bond loans, a nominal interest rate is set on the bonds that can be fixed for the entire term of the loan, or which may be adjusted at the agreed time. The person who owns the bond at any time will receive interest.

Market interest rate

Market interest rate

Bonds are often sold when the loan is issued at par (100). If the market interest rate decreases (increases) after the loan has been issued, the price (price) of the bonds will increase (decrease). If the market interest rate is reduced, owners of a bond with a nominal interest rate that are higher than the market interest rate will only sell if the price of the bond increased The buyer of the bond must in turn accept to pay more for a security that yields an interest rate return that is above the market rate

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