Types of Bonds
Bonds can be categorized based on different criteria:
- By Issuer: Based on the issuing entity, bonds can be categorized into Government Bonds, Institutional Bonds, Corporate Bonds, and more.
- By Payment Structure: Based on whether the bond terms specify periodic interest payments to bondholders, bonds are divided into three types: Zero-Coupon Bonds, Fixed-Rate Bonds, and Floating-Rate Bonds.
Zero-Coupon Bonds: These bonds do not make periodic interest payments. Instead, they are issued at a significant discount to their face value (redemption value at maturity), with the investment yield reflected in the price appreciation.
Fixed-Rate Bonds: The coupon rate is set at issuance and remains fixed throughout the life of the bond until maturity.
Floating-Rate Bonds: Also known as variable-rate bonds, the interest payout fluctuates based on changes in benchmark market rates. Common benchmark indexes include interbank offered rates such as HIBOR or LIBOR.
