Bonds

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Definition

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.); 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.