What are bonds and what you need to know.

What are bonds?

Bonds are a type of security that confirms a debt obligation of a business or government to the holder.

Bond issuers can be businesses (called corporate bonds) or public government organizations such as the State Treasury (called treasury bonds) or the government (called government bonds or public bonds).

Any individual, business, or government can buy or be a bondholder. Bonds may bear the name of the bondholder, called registered bonds, or they may be unregistered, called bearer bonds.

The person who lends money to the bond issuer is called the bondholder. Bondholders bear no responsibility for how the borrowed funds are used. The issuer is obligated to repay the debt as agreed in the loan contract.

What are bonds and what you need to know - 1 — Bonds are a type of security that confirms a debt obligation of a business or government to the holder.

Bonds generate income in the form of interest, which is a fixed, regular payment that is independent of business performance.

Bonds are essentially debt securities; therefore, in the event of company dissolution or bankruptcy, the company's shares must first be paid to bondholders as a mandatory obligation. Only after the bond debt is repaid can shares be distributed to shareholders.

What types of bonds are there?

Government bonds are issued by the Ministry of Finance to raise capital for the state budget or programs and projects within the scope of state investment. Government bonds typically have low interest rates but carry the least risk compared to other types of securities.

Local government bonds are issued by the People's Committee of provinces and cities with a maturity of one year or more to raise capital for local investment projects. The funds used to repay these bonds are usually from the local budget.

Corporate bonds are issued by businesses (including banks) to meet their capital needs, based on the principle of self-borrowing, self-repayment, and self-responsibility for debt repayment.

Do bonds need to be secured by assets?

Bonds are of two types: Secured bonds are those where the issuer uses assets such as real estate, machinery and equipment, or stocks as collateral for the issuance. Typically, the pledged assets have a market value greater than the face value of the issued bonds. In the event of the issuer's insolvency, bondholders have the right to sell the collateral to recover the outstanding debt.

Unsecured bonds have the opposite characteristics, and therefore carry a higher level of risk.

Hopefully, the information above has helped you better understand what bonds are and some basic information about them.

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