Want to know about bond issuers and different types of bonds? Bonds are like debt security just like an IOU. Bonds are issued by borrowers to raise money from investors for a certain period of time.
Bonds are a form of tradable debt in which an investor lends money to an entity ( can be government or corporate). Just like any other trade has a borrower and a lender, bonds trade have a bond issuer and a bondholder.
In the Bonds trade, bond issuers are basically the borrowers whereas investors who purchase those bonds or bondholders are the lenders. At the maturity of the bond, the bond issuer repays the principal value for which the bonds were issued to the bondholders.
Types of Bond Issuers
There are many types of bond issuers who issue bonds as tradable debt. The list of bond issuers types are given below:
- Municipalities and Regions
Let’s learn more about these bond issuers in details :
The most common types of bonds are issued by firms to meet their financial requirements for a project or working capital. Bonds issued by firms can range between the whole spectrum of bond ratings regulated by the S&P rating board.
Firms can also issue different types of bonds with different characteristics. In simple words, a company with a specific credit rating doesn’t mean that it has to issue bonds with that credit rating only. For instance, Reliance may issue bonds with an AA rating, even if the company’s itself wholly rated as an AAA company.
Entities here refer to entities that are not based in a specific nation i.e., global entities also known as Supranational Entities. Yet its members exist in multiple countries. World Bank or European Investment bank are a few examples of supranational entities. Just like a government bond these bonds are also highly rated.
The second most popular bonds are issued by the government. Government bonds are generally very high quality/ratings. The bond’s quality or rating also depends on the government i.e., which specific government is issuing the bonds. For example bonds of developing countries would be riskier and low quality than bonds issued by a developed country.
The U.S. Treasury bonds are typically quite highly rated bonds with yield rate considered as risk-free while calculating financial ratios such as cost of equity under the capital assets pricing model.
Regions & Municipalities
Municipalities also issue bonds in the same manner as the government. Hence the ratings of bonds are usually similar to over encompassing government. While the government not directly issue the bonds but they are backed up by the full faith of the government.
Special Projects or SPV’s
These are the bonds issued for a specific project i.e., infrastructure build or through special purpose vehicles (SPV’s). The money raised from issuing the bonds are further used to finance that project and the principal amount or coupon payment then paid out through revenue generated from the project.