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
One lender in the case of bilateral credit, or a few lenders if it is a syndicated credit
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.); to inform them about the state of the market and the level of investor appetite for their bonds; to 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.