More About Bonds

Some fixed income securities, such as Government Bonds, are "negotiable" and can be bought and sold on the secondary market. Most investors refer to marketable fixed income investments as "bonds". Others, such as Government Savings Bonds and some types of Bank Deposit contracts, are not negotiable and must be held until maturity or refunded by the issuer.

Bonds are available in various terms and from many issuers. Most bonds in North America pay their interest rate or "coupon payment" twice each year (semi-annually). European bonds or "Euro Bonds" pay their coupon once a year (annually). The coupon is set when the bond is issued and usually stays unchanged for the term of the bond. The principal or "par amount" is usually $100. The investors advance this amount in return for the promise by the issuer to pay the coupon as stated and the principal amount at maturity.

Bonds range in term from 1 year to 40 years. However, there are exceptions, as seen in 1993 when the Disney Corporation issued a 100 year bond. Bonds are identified by their issuer, coupon, and term. For example, the Canada 8% bonds of 2023 were issued by the Government of Canada, they pay 8% interest, or $8 per $100 of principal per year (actually $4 every 6 months), and will return the principal of $100 on June 1, 2023. A bond trader would call these the "Canada eights of twenty-three".

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