Bonds are fixed income securities that are evidenced by a deed. With the purchase of a bond, the investor becomes the creditor of the issuer of the bond.
In return, the issuer of the bond undertakes to pay interest on the transfer of the money and to repay the capital at a fixed date. Bonds are issued by the federal government, federal states, municipalities, banks, savings banks, mortgage banks, large industrial companies or foreign issuers. The interest depends on the creditworthiness of the debtor.
Types of bonds
There are bonds with variable or fixed interest rates but also without interest payments – so-called zero-coupon bonds.
Depending on the creditworthiness of the issuer and the specific conditions of the bond, bonds may have varying degrees of risk. Of great relevance is the creditworthiness of the exhibitor. For example, the risk of acquiring Brazilian government bonds is higher than for Austrian government bonds.
There is also a price risk for early sales: Sales before the contractually agreed term are generally possible without any problems, but without a price guarantee. For foreign currency bonds, the currency risk is added. An indicator of the risk to be taken is also the level of the bond’s interest. The higher the risk, the higher the bond’s interest rate.
The purchase and sale of bonds incur charges based on the market value or nominal value (nominal value). Furthermore, deposit costs for the management of the securities account. Most institutions have minimum charges. The custody fee is added to the statutory sales tax of 20%. Lower or no fees (purchase fees and / or custody costs) accrue to most institutions for certain own securities.
Even bonds with a long residual maturity can usually be sold at any time. However, in the case of early sale, the price to be achieved depends on the supply and demand of this bond. Losses are therefore not excludable.
The yield on a bond is calculated from the bond interest rate and the market price. The yield is reduced by buying and selling expenses as well as by the costs of the deposit management. If a bond is to be held until the end of the term, the interest earned on fixed rate bonds, unlike variable rate bonds, is fixed at the time of purchase. However, there is also the possibility for bonds with fixed interest rates that the issuer may suspend the option of early termination in the bond terms.