Bond Payment Terms

The legal documentation for a bond is required to specify the terms for both interest and principal payments. Interest can be paid monthly, semi-anually or annually. This makes a difference to the compounding of the interest and will affect the trading of a bond.

Most bonds are pay interest semi-annually in North America. "Eurobonds", which trade in Europe, pay interst annually. Mortgage-Backed Securities (MBS) and Asset-Backed Securities (ABS) are pay interest monthly, reflecting the payment terms of the underlying mortgages and loans. The currency of payments is important. Some bonds have the coupon paid in one currency and the principal in another. Bonds which pay part of their principal before maturity are said to "amortize" their principal, this is the case with many mortgage bonds.

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