Bonds are categorised into several categories according to the model of return and validities of legal commitments. Here are the popular types of bonds in the public debt market –
Fixed-interest bonds refer to debt instruments that accrue consonant coupon rates across their tenure. These predetermined interest rates help investors with expected returns on investment irrespective of market alterations.
These bonds acquire coupon rates that are subjected to market variations and flexible in terms of tenures. The yield on investment through interest income is thus variable as it is defined by market circumstances such as inflation, economic condition.
Inflation-linked bonds refer to special debt vehicles devised to curb the impact of economic inflation on the face value and interest return. The coupon rates extended on this type of bonds are lower as compared to fixed-interest bonds. It thus aims to overcome the adverse outcomes of inflation by modifying coupons pertaining to the usual rates in the debt market.
Also known as ‘consol bonds’ or ‘perp,’ this type of bonds are fixed-security options wherein issuers do not require to pay the principal amount to the purchaser. It does not have any maturity period, and customers benefit from steady interest payments.