Bonds

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What is a bond?

A bond is a security representing a debt. Bonds are securities used by governments, non-financial or financial companies to borrow on the financial markets. For the bond issuer, a bond is a form of borrowing. For the bond investor, it is a form of lending.

Difference between credit and securitized debt

Credit	Securitized debt
One lender in the case of bilateral credit, or a few lenders if it is a syndicated credit	Several lenders
Rate is fixed by the bank	Rate is fixed by the market
Little or no liquidity	Liquid secondary market

The main characteristics

The amount: a standard issue is around €500M;
The duration;
The interest, or coupon, rate;
The interest payment terms;
The terms of capital repayment;
The level of counterparty risk (rating);
The price;
The rate of return.

Role of the bank

The role of the bank during a bond issue is to:

advise the client on the type of issue (duration, fixed or variable rate, type of bond, which currency, etc.);
inform them about the state of the market and the level of investor appetite for their bonds;
advise them whether or not to seek a credit rating for the issue.

It is the DCM (Debt Capital Markets) departments of the banks that help clients issue debt securities on the markets.

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