The Many Different Types of Bonds

Here are some simple ways of classifying obligations under the type of issuer credit ratings, the type of coupons, and the presence of various options such as call or conversion.

Based on the type of issuer, any sovereign bonds, businesses and virtually. Based on credit ratings, which can be classified as investment grade and non-investment obligations. Investment Grade Bond has also been designated as junk or high-yield bonds. Depending on the type of coupon notes can be classified as zero coupon bonds, the fixed-rate and floating-rate bonds. Zero coupon bonds do not make coupon payments and are issued at a discount to their face value. Corporate bonds have a fixed rate coupon fixed rate over the term to maturity, while the variable-rate bonds have variable interest rates. The discount rates are usually linked to the reference rate such as the London Interbank Offered Rate (LIBOR). The nominal interest rate is reset periodically.

Callable bonds may be redeemed by the issuer for a predetermined time at a predetermined price. The price at which they can be redeemed by the issuer is the option price. The period during which it may be redeemed prior to maturity is termed as the date of the call.

Convertible bonds offer investors an option to convert the bonds into shares. When stock markets are rising and investors expect significant increase in capital, convertible bonds are attractive to investors.

There are other ways to classify needs in their country of issue, the name of money and the risk of the issuer of the country.

Yankee bonds are denominated in U.S. dollars and issued in the United States by non-US companies. Eurodollar Notes are denominated in dollars and issued outside the United States by non-US entities.

Kangaroo bonds are denominated in Australian currency, the Australian dollar and issued in the Australian market by non-Australian. New Zealand Kauri bonds are dollar-denominated notes issued in New Zealand by non-profit organizations in New Zealand. Samurai bonds are denominated in Japanese currency, the yen, and sold by non-Japanese companies in Japan. Maple Notes are denominated in Canadian dollars and issued in Canada by non-Canadians.

Dimsums are RMB (Chinese currency) notes issued in Hong Kong and settled in the offshore CNH market in Hong Kong. The onshore RMB traded currency in China is known as CNY and offshore list is known as CNH. Bonds are synthetic CNY RMB but settled in USD. The agreement will focus on an exchange rate based on the type of field set up by the People's Bank of China (PBOC). Uridashi Notes are denominated in a foreign currency (other than the Japanese yen) and sold to Japanese retail investors.

These different types of fixed income securities offer investment opportunities for fixed income investors. However, investors should consider carefully the advice of financial advisers to assess the risks associated with them.

Chirag Sharma is a consultant in digital marketing SJ Seymour Group based in Hong Kong. SJS Markets provides research, consulting, services and implementing solutions private wealth management.