The Capital and Bond Market (Types of Bonds (Coupons are detachable from…
The Capital and Bond Market
Capital Market Participants
The federal government issues long-term notes and bonds to fund the national debt. Governments never issue stock because they cannot sell ownership claims.
Corporations issue both bonds and stock. One of the most difficult decisions a firm faces can be whether it should finance its growth with debt or equity.
The largest purchasers of capital market securities are households.
Capital Market Trading
Investment funds, corporations, and individual investors can all purchase securities offered in the primary market.
The capital markets have well-developed secondary markets.
Types of Bonds
Coupons are detachable from the bond certificate itself, usually by a perforation, and are presented to the paying agent of the issuer, usually a commercial bank, for payment.
Bearer bonds, for example, belong to the person who holds them and ownership is not otherwise recorded.
The other common type of format is a fully registered bond, either in certificate form or in book entry.
Treasury Bonds - a debt security backed by the full faith and credit of the United States government with a maturity of 10 to 20 years.
Municipal bonds are securities issued by local county and state governments.
Mortgage bonds are used to finance a specific project.
Equipment trust certificates are bonds secured by tangible non-real-estate property, such as heavy equipment or airplanes.
Debentures are long-term unsecured bonds that are backed only by the general creditworthiness of the issuer.
Variable-rate bonds are a financial innovation stimulated by increased interest-rate variability in the 1980s and 1990s.
Junk Bond - a bond with a low rating
Financial Guarantees for Bonds
Large, well-known insurance companies write what are actually insurance policies to back bond issues.