Bonds

Bonds (also sometimes called debentures) are interest-bearing securities that represent an obligation of the issuer to repay at the agreed dates the interest (coupon) and the lent capital. The bond holder is the issuer’s creditor. Investors may obtain dual income – interest coupon and possibly profit from the difference in rates in the case of a favourable change in the bond price. There are a number of different types of bonds. According to the issuer, there are government, municipal or corporate bonds. According to the residence of the issuer, there are domestic and foreign bonds. In the Czech Republic, the issue conditions of most bonds are subject to the approval of the Czech National Bank. According to the issuers, there are public (government or state, municipalities,...), corporate (company) and mortgage bonds (certificates). The bonds are not associated with shareholder rights. According to the yield, there are fixed-rate bonds or floating-rate bonds referred to as floaters – their interest rate is adjusted at regular intervals, usually every six months based on the current value of the selected reference rate. The most important types of risks in bonds are the credit and interest rate risks (other things being equal, if the rates increase, the bond price falls and vice versa) with additional currency risk in bonds in foreign currency.