documents from a government or company which promise that money borrowed
from an investor will be repaid. Bonds are usually issued for a period of
more than one year. The U.S.
government, local governments, water companies and many other
types of institutions sell bonds. When an investor buys bonds, he or she
is lending money. The seller of the bond agrees to repay the principal
amount of the loan at a specified time. Interest-bearing bonds pay
Listen to the following report in American English on investment bonds, and
answer these true or false questions.
1. Another name for a bond issuer is a bond
2. An investment bond with a value of one
thousand dollars which pays 5% interest, gives you fifteen dollars a
3. United States Treasury bonds are low risk
bonds because they are supported by the government?
Credit rating agencies can help the investor by saying whether or not a
company is a good investment?
Bonds are usually sold in one hundred dollar amounts?
6. If the
price of a bond falls, the interest increases?
There are some mistakes in the transcription. Correct the mistakes as you
listen. The first one has been done for you.
Use the pause button on your media player to give you time to write.
often need to borrow more money than a single
. So they
depend, instead, on credit markets. Sales of bonds or similar securities
help finance governments and businesses, while investors earn
Bonds are loans. They must be repaid at the end of an established period,
when the bond reaches maturity. During that period, the
, called the
issuer, must make interest payments to the
called the yield. A one thousand dollar bond with a yield of five percent
would pay interest of fifty dollars per
Some bonds are considered free of
United States Treasury bonds, for example, are supported by "the full
faith and " of the
But, in credit markets, how does an investor know if a company can pay its
debts? Credit rating agencies help. These companies
they are to receive
the principal with interest. The principal is the amount of the bond at
Such advice helps markets to
of credit. We talked
last week about credit rating agencies. The two biggest in America are
Standard and Poor’s and Moody’s Investors Service. We described how they
credit rating of General Motors and Ford Motor Company.
A change in the credit rating of a
affect the price of its bonds. Standard and Poor’s gave G.M. a rating of
double-B and Ford a rating of double-B-plus. Those ratings are known as
junk status, or below investment grade. The lower the rating for a
its debt is considered for investors.
Credit markets reacted; the price of G.M. and Ford bonds
. This week, the
price for a G.M. bond maturing in two thousand
was a little
over seven hundred ten dollars. Bonds are usually sold in the
of one thousand
dollars. So buyers who paid full price would get back only about
three-fourths of the
if they sold
that bond now.
as bond prices fall, the yield increases. This is because the interest
stays the same, so long as the bond issuer continues to
. Risky bonds appeal
to some investors because of the lower cost and higher yield. The risk,
however, is that the investors
The term duration has a special meaning in the
context of bonds. It is a measurement of how long, in years, it takes
for the price of a bond to be repaid by its internal cash flows. It is
an important measure for investors to consider, as bonds with higher
durations carry more risk and have higher price volatility than bonds
with lower durations.
For each of the two basic types of bonds the duration is the
1. Zero-Coupon Bond – Duration is equal to its time to
2. Vanilla Bond - Duration
will always be less than its time to maturity
Bearer Bonds: Bond certificates which can be held anonymously
and used almost as freely as cash. Capital Bonds (National Savings): National Savings product
designed for lump sum investments. Return is maximised if held for
five years and is liable to income tax. Capped Bonds: The floating interest rate charged cannot rise
above a specific level. Conventional Stocks and Bonds: Bonds with fixed interest rates
and repayment dates. Convertible Bonds: Bonds which carry a rate of interest and
give the owner the right to exchange the bonds at some stage in the
future into ordinary shares according to a prearranged formula. External Bonds: Bonds issued in the market of one country which
are denominated in the currency of another. Foreign Bonds: Issues of loan stock on the domestic market by
non-resident firms or organisations. In London, they are called
bulldogs, in New York Yankees. Government Bonds: Bonds issued by a government to finance
fiscal borrowing requirements. Guaranteed Equity Bonds: Investment products which promise a
stock market linked return if the market rises, and the return of the
original capital if the stock market falls. International Bonds: Securities issued by borrowers in a market
outside that of their domestic currency.