In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the

terms of the bond, is obliged to pay interest (the coupon) to use and/or to repay the principal at a later date, termed maturity. A bond is a formal contract to repay borrowed money with interest at fixed intervals.[1] Thus a bond or fixed income is like a loan: the holder of the bond is the lender (creditor), the issuer of the bond is the borrower (debtor), and the coupon is the interest. Bonds provide the borrower with external funds to finance long-term investments, or, in the case of government bonds, to finance current expenditure. Certificates of deposit (CDs) or commercial paper are considered to be money market instruments and not bonds. Bonds and stocks are both securities, but the major difference between the two is that (capital) stockholders have an equity stake in the company (i.e., they are owners), whereas bondholders have a creditor stake in the company (i.e., they are lenders). Another difference is that bonds usually have a defined term, or maturity, after which the bond is redeemed, whereas stocks may be outstanding indefinitely. An exception is a consol bond, which is a perpetuity (i.e., bond with no maturity).

Bonds Turnover Ratio Data vary across markets. For details download spreadsheet.

Downloadable Spreadsheet

Bonds Turnover Ratio

Bonds turnover ratio =

Value of bonds traded Average amount of bonds outstanding

The Bonds Turnover Ratio is a measure of bond market liquidity. The ratio shows the extent of trading in the secondary market relative to the amount of bonds outstanding. The average amount of bonds outstanding is computed by determining the average amount of bonds outstanding at the end of the previous and current quarters. This ratio is computed separately for government and corporates, and excludes repurchase transactions. The higher the turnover ratio, the more active the secondary market. Note on the Data: 1. Where the reported value of bonds traded is the sum of sales and purchases (JP, ID, KR, PH, SG), the figure is divided by two to bring the ratio in line with other markets. 2. Where the value of bonds traded is reported as a daily average (HK, SG), the daily average is multiplied by 252 (approximate number of trading days in a year) to obtain an annual estimate. 3. Specific data sources for each market are as follows: CN: ChinaBond. Government and corporate bonds include those traded on the interbank market, Shenzhen Stock Exchange and Shanghai Stock Exchange. HK: Hong Kong Monetary Authority. Government bonds include Exchange Fund Bills and Notes. ID: Indonesia Stock Exchange (IDX). Government and corporate bonds include all bonds listed on the IDX. Sertifikat Bank Indonesia are excluded because of lack of data. JP: Japan Securities Dealers Association. Government bonds include short & long term Public Offerings Municipal bonds, Government-guaranteed, FILP-Agency bonds, and Transportation and NHK bonds. Corporate bonds include Straight bonds, Asset Backed bonds, Convertible bonds, Bank debentures, and Yen-denominated bonds issued by nonresidents. KR: Bank of Korea (BOK) and Korea Bond Web (KBW). Outstanding Government bonds are from BOK and include Government bonds, Municipal bonds, and short & long term Monetary Stabilization Bonds. Outstanding Corporate bonds are from KBW and include Special public bonds, Financial debenture, and Corporate bonds. MY: Bank Negara Malaysia. Government bonds include Malaysia Government Securities, Malaysia Treasury Bills, Bank Negara Bills and Government Investment Instruments, Khazanah bonds, and Cagamas bonds. Corporate bonds include asset-backed securities, commercial papers, medium term notes, and other corporate bonds. PH: Bureau of the Treasury. Government bonds include Treasury bills and bonds SG: Monetary Authority of Singapore. Government bonds include Singapore Government securities, bills and bonds. TH: Bank of Thailand and Thai Bond Market Association (Thai BMA). Only Thai BMA registered bonds are included. Government bonds include government and central bank issuance, treasury bills, state-enterprise and specialized organization bonds. The value of bonds traded is reported at market prices. 4. Corporate sector turnover is not available for Philippines and Singapore.

Features of bonds The most important features of a bond are:

nominal, principal or face amount the amount on which the issuer pays interest, and which, most commonly, has to be repaid at the end of the term. Some structured bonds can have a redemption amount which is different from the face amount and can be linked to performance of particular assets such as a stock or commodity index, foreign exchange rate or a fund. This can result in an investor receiving less or more than his original investment at maturity. issue price the price at which investors buy the bonds when they are first issued, which will typically be approximately equal to the nominal amount. The net proceeds that the issuer receives are thus the issue price, less issuance fees. maturity date the date on which the issuer has to repay the nominal amount. As long as all payments have been made, the issuer has no more obligation to the bond holders after the maturity date. The length of time until the maturity date is often referred to as the term or tenor or maturity of a bond. The maturity can be any length of time, although debt securities with a term of less than one year are generally designated money market instruments rather than bonds. Most bonds have a term of up to thirty years. Some bonds have been issued with maturities of up to one hundred years, and some do not mature at all. In the market for U.S. Treasury securities, there are three groups of bond maturities: o short term (bills): maturities between one to five year; (instruments with maturities less than one year are called Money Market Instruments) o medium term (notes): maturities between six to twelve years; o long term (bonds): maturities greater than twelve years. coupon the interest rate that the issuer pays to the bond holders. Usually this rate is fixed throughout the life of the bond. It can also vary with a money market index, such as LIBOR, or it can be even more exotic. The name coupon originates from the fact that in the past, physical bonds were issued which had coupons attached to them. On coupon dates the bond holder would give the coupon to a bank in exchange for the interest payment.

Bond issued by the Dutch East India Company in 1623

The "quality" of the issue refers to the probability that the bondholders will receive the amounts promised at the due dates. This will depend on a wide range of factors. o Indentures and Covenants An indenture is a formal debt agreement that establishes the terms of a bond issue, while covenants are the clauses of such an agreement. Covenants specify the rights of bondholders and the duties of issuers, such as actions that the issuer is obligated to perform or is prohibited from performing. In the U.S., federal and state securities and commercial laws apply to the enforcement of these agreements, which are construed by courts as contracts between issuers and bondholders. The terms may be changed only with great difficulty while the bonds are outstanding, with amendments to the governing document generally requiring approval by a majority (or super-majority) vote of the bondholders. o High yield bonds are bonds that are rated below investment grade by the credit rating agencies. As these bonds are more risky than investment grade bonds, investors expect to earn a higher yield. These bonds are also called junk bonds. coupon dates the dates on which the issuer pays the coupon to the bond holders. In the U.S. and also in the U.K. and Europe, most bonds are semi-annual, which means that they pay a coupon every six months.

Optionality: Occasionally a bond may contain an embedded option; that is, it grants option-like features to the holder or the issuer: o Callability Some bonds give the issuer the right to repay the bond before the maturity date on the call dates; see call option. These bonds are referred to as callable bonds. Most callable bonds allow the issuer to repay the bond at par. With some bonds, the issuer has to pay a premium, the so called call premium. This is mainly the case for highyield bonds. These have very strict covenants, restricting the issuer in its operations. To be free from these covenants, the issuer can repay the bonds early, but only at a high cost. o Putability Some bonds give the holder the right to force the issuer to repay the bond before the maturity date on the put dates; see put option. These are referred to as retractable or putable bonds. o call dates and put datesthe dates on which callable and putable bonds can be redeemed early. There are four main categories. A Bermudan callable has several call dates, usually coinciding with coupon dates. A European callable has only one call date. This is a special case of a Bermudan callable. An American callable can be called at any time until the maturity date. A death put is an optional redemption feature on a debt instrument allowing the beneficiary of the estate of the deceased to put (sell) the bond (back to the issuer) in the event of the beneficiary's death or legal incapacitation. Also known as a "survivor's option". sinking fund provision of the corporate bond indenture requires a certain portion of the issue to be retired periodically. The entire bond issue can be liquidated by the maturity date. If that is not the case, then the remainder is called balloon maturity. Issuers may either pay to trustees, which in turn call randomly selected bonds in the issue, or, alternatively, purchase bonds in open market, then return them to trustees. convertible bond lets a bondholder exchange a bond to a number of shares of the issuer's common stock. exchangeable bond allows for exchange to shares of a corporation other than the issuer.

Common Stock Vs. Preferred Stock Vs. Bonds By Jay P. Whickson, eHow Contributor

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Many people want to invest, but they don't know what type of investment to choose. The terms for different types of investments confuse them. The reasons for investing in each type also vary. Stocks and bonds differ because bonds are actually a loan to the company, and stocks are ownership in the company. There is also a difference between the common and preferred stocks. Dividends

o
Interest

Preferred stock gets paid dividends first if the company makes money. Common stock makes money from dividends after the preferred stockholders receive payment.

o
Value

Bonds receive interest payments just like any loan. These interest payments receive first priority and are in a specific amount.

Bonds pay face value when they come due. Until that point, they trade according to the market. Stocks vary in price with the market, but preferred stock may have a par value equal to the original amount invested in the event of liquidation of the company.

Liquidation

o
Growth

Bonds receive preferential treatment for payment on liquidation of the company. Next in line are the preferred stock and finally the common stock.

All stock has the potential to grow or drop in value. Common stock tends to have a higher potential than preferred. Bonds may grow in value or drop, but pay out face value when due.

Taxation

Dividends from stock get preferential tax treatment if they come from American companies. Taxes on interest from bonds are at the holder's tax rate.

Preferred stock, also called preferred shares, preference shares, or simply preferreds, is a special equity security that has properties of both an equity and a debt instrument and is generally considered a hybrid instrument. Preferreds are senior (i.e., higher ranking) to common stock, but are subordinate to bonds.[1] Preferred stock usually carries no voting rights,[2] but may carry a dividend and may have priority over common stock in the payment of dividends and upon liquidation. Preferred stock may have a convertibility feature into common stock. Terms of the preferred stock are stated in a "Certificate of Designation". Similar to bonds, preferred stocks are rated by the major credit rating companies. The rating for preferreds is generally lower since preferred dividends do not carry the same guarantees as interest payments from bonds and they are junior to all creditors.[3] Preferred stock is a special class of shares that may have any combination of features not possessed by common stock. The following features are usually associated with preferred stock:[4]

Preference in dividends. Preference in assets in the event of liquidation. Convertible into common stock. Callable at the option of the corporation. Nonvoting.

In general, preferreds have preference to dividends payments. A preference does not assure the payment of dividends, but the company must pay the stated dividend rate prior to paying any dividends on common stock.[4]

Preferred stock can either be cumulative or noncumulative. A cumulative preferred requires that if a company fails to pay any dividend or any amount below the stated rate, it must make up for it at a later time. Dividends accumulate with each passed dividend period, which can be quarterly, semi-annually, or annually. When a dividend is not paid in time, it has "passed" and all passed dividends on a cumulative stock is a dividend in arrears. A stock that doesn't have this feature is known as a noncumulative or straight[5] preferred stock and any dividends passed are lost forever if not declared.[6] Other features or rights

Preferred stock may or may not have a fixed liquidation value, or par value, associated with it. This represents the amount of capital that was contributed to the corporation when the shares were first issued.[7] Preferred stock has a claim on liquidation proceeds of a stock corporation, equivalent to its par or liquidation value unless otherwise negotiated. This claim is senior to that of common stock, which has only a residual claim. Almost all preferred shares have a negotiated fixed dividend amount. The dividend is usually specified as a percentage of the par value or as a fixed amount. For example Pacific Gas & Electric 6% Series A preferred. Sometimes, dividends on preferred shares may be negotiated as floating i.e. may change according to a benchmark interest rate index such as LIBOR. Some preferred shares have special voting rights to approve certain extraordinary events (such as the issuance of new shares or the approval of the acquisition of the company) or to elect directors, but most preferred shares provide no voting rights associated with them. Some preferred shares only gain voting rights when the preferred dividends are in arrears for a substantial time.

The above list, although including several customary rights, is far from comprehensive. Preferred shares, like other legal arrangements, may specify nearly any right conceivable. Preferred shares in the U.S. normally carry a call provision,[8] enabling the issuing corporation to repurchase the share at its (usually limited) discretion. Common stock is a form of corporate equity ownership, a type of security. It is called "common" to distinguish it from preferred stock. In the event of bankruptcy, common stock investors receive their funds after preferred stock holders, bondholders, creditors, etc. On the other hand, common shares on average perform better than preferred shares or bonds over time.[1] Common stock is usually voting shares, though not always. Holders of common stock are able to influence the corporation through votes on establishing corporate objectives and policy, stock splits, and electing the company's board of directors. Some holders of common stock also receive preemptive rights, which enable them to retain their proportional ownership in a company should it issue another stock offering. There is no fixed dividend paid out to common stock holders and so their returns are uncertain, contingent on earnings, company reinvestment, efficiency of the market to value and sell stock.[2] Additional benefits from common stock include earning dividends and capital appreciation. It can also be known as Ordinary Shares. Common Stock Stock in a publicly-traded company that entitles holders to vote in the annual meeting, to elect the board of directors, and to generally exercise control of the company. While common stockholders are important in terms of their level of control, they have the least precedence in the event of liquidation. That is, if the company goes bankrupt, common stockholders do not receive any money until all bondholders, other debt holders, and preferred shareholders are paid in full. Likewise, common stock is not entitled to a guaranteed dividend. Common stock is also called ordinary stock. common stock A class of capital stock that has no preference to dividends or any distribution of assets. Common stock usually conveys voting rights and is often termed capital stock if it is the only class of stock that a firm has outstanding (that is, the firm has neither preferred stock nor multiple classes of common stock). Common stockholders are the residual owners of a corporation in that they have a claim to what remains after every other party has been paid. The value of their claim depends on the success of the firm. See also callable common stock, common stock equivalent, puttable common stock.