Bonds are a form of debt. The borrower is the issuer of the bond and the lender is the investor who buys the bond.
Fixed Income Fundamentals
Glossary of Main Terminology
There is quite a bit of industry jargon in the world of fixed income investment. We have tried to give simple explanations to the main terms below. We hope you will find this useful.
Who issues bonds and why?
The principal issuers of bonds are governments, financial institutions and corporations.
Why do governments issue bonds?
Governments issue bonds to cover the shortfall between the amount they raise.
Why do corporations issue bonds?
Companies fund themselves with a mixture of bank finance.
Why do financial institutions issue bonds?
Financial institutions issue bonds to finance their business.
Who is an issuer?
This is the entity that issues bonds and can be any legal entity within a group of companies.
What is a basis point?
This is one hundredth of one percentage point (i.e. 0.01%).
What is the maturity of a bond?
The maturity of a bond is the date of the final payment due from the issuer.
What is a coupon?
This is the interest rate payable by the borrower on the face value of the bond.
What is the par value of a bond?
This is the unit of measure, or denomination, of a bond.
What is credit risk?
Credit risk includes probability of default, market, concentration and correlation risks.