Some of the simple ways of classifying bonds are based on the type of issuers, credit ratings, type of coupons, and presence of various options such as call or conversion.
Based on the type of issuers, there are government, corporate, and quasi sovereign bonds.
Based on the credit ratings, they can be classified as investment grade and non investment bonds.
Non investment grade bonds are also termed as junk or high yield bonds.
Based on coupon type, notes can be classified as zero coupon bonds, fixed rate notes, and floating rate notes.
Zero coupon bonds do not make coupon payments and are issued at a discount to par value.
Fixed rate notes have a fixed coupon for the entire period until maturity while floating rate notes have variable coupon rates.
The coupon rates are generally linked with benchmark rates such as London Interbank Offered Rate (LIBOR).
The coupon rate is reset periodically.
Callable bonds can be redeemed by the issuer at a pre-determined schedule at a pre-determined price.
The price at which they can be redeemed by the issuer is the call price.
The time frame at which they can be redeemed before the maturity is termed as the call date.
Convertible bonds offer investors an option to convert the bonds into company's stock.
When the equity markets are bullish and investors expect significant upside in equity, convertible bonds look attractive to investors.
There are other ways of classifying bonds, based on their country of issue, currency of denomination and the country of risk of the issuing company.
Yankee bonds are denominated in U.
S.
Dollars and issued in the U.
S.
by non-US companies.
Eurodollar notes are USD denominated and issued outside the U.
S by non-U.
S.
entities.
Kangaroo bonds are denominated in Australian currency, Australian Dollar and issued in the Australian market by non-Australian companies.
Kauri bonds are New Zealand dollar denominated notes issued in New Zealand by non-New Zealand entities.
Samurai bonds are denominated in Japanese currency, Yen, and sold by non-Japanese companies in Japan.
Maple notes are Canadian dollar denominated and issued in Canada by non-Canadian companies.
Dimsums are RMB (Chinese currency) denominated notes issued in Hong Kong and settled in CNH in the offshore market in Hong Kong.
The currency RMB traded onshore in Mainland China is known as CNY and traded offshore is known as CNH.
Synthetic CNY bonds are denominated in RMB but settled in USD.
The settlement will be in an exchange rate based on the onshore rate set by People's Bank of China (PBoC).
Uridashi notes are denominated in a foreign currency (other than Japanese Yen) and sold to Japanese retail investors.
These various types of fixed income securities provide investment opportunities to fixed income investors.
However, investors need to prudently consider the advice of financial advisors in assessing the various risks associated with them.
Based on the type of issuers, there are government, corporate, and quasi sovereign bonds.
Based on the credit ratings, they can be classified as investment grade and non investment bonds.
Non investment grade bonds are also termed as junk or high yield bonds.
Based on coupon type, notes can be classified as zero coupon bonds, fixed rate notes, and floating rate notes.
Zero coupon bonds do not make coupon payments and are issued at a discount to par value.
Fixed rate notes have a fixed coupon for the entire period until maturity while floating rate notes have variable coupon rates.
The coupon rates are generally linked with benchmark rates such as London Interbank Offered Rate (LIBOR).
The coupon rate is reset periodically.
Callable bonds can be redeemed by the issuer at a pre-determined schedule at a pre-determined price.
The price at which they can be redeemed by the issuer is the call price.
The time frame at which they can be redeemed before the maturity is termed as the call date.
Convertible bonds offer investors an option to convert the bonds into company's stock.
When the equity markets are bullish and investors expect significant upside in equity, convertible bonds look attractive to investors.
There are other ways of classifying bonds, based on their country of issue, currency of denomination and the country of risk of the issuing company.
Yankee bonds are denominated in U.
S.
Dollars and issued in the U.
S.
by non-US companies.
Eurodollar notes are USD denominated and issued outside the U.
S by non-U.
S.
entities.
Kangaroo bonds are denominated in Australian currency, Australian Dollar and issued in the Australian market by non-Australian companies.
Kauri bonds are New Zealand dollar denominated notes issued in New Zealand by non-New Zealand entities.
Samurai bonds are denominated in Japanese currency, Yen, and sold by non-Japanese companies in Japan.
Maple notes are Canadian dollar denominated and issued in Canada by non-Canadian companies.
Dimsums are RMB (Chinese currency) denominated notes issued in Hong Kong and settled in CNH in the offshore market in Hong Kong.
The currency RMB traded onshore in Mainland China is known as CNY and traded offshore is known as CNH.
Synthetic CNY bonds are denominated in RMB but settled in USD.
The settlement will be in an exchange rate based on the onshore rate set by People's Bank of China (PBoC).
Uridashi notes are denominated in a foreign currency (other than Japanese Yen) and sold to Japanese retail investors.
These various types of fixed income securities provide investment opportunities to fixed income investors.
However, investors need to prudently consider the advice of financial advisors in assessing the various risks associated with them.