What are bonds?
Several types of bonds exist:
- Government bonds represent a debt on the Treasury . In France , it is for example the OAT and German Bund which refers to the euro area.
- The obligations of the public sector. Eg EDF , Air France / KLM etc ...
- The obligations of the private sector. For example: Bouygues Telecom , Veolia etc ...
These three types of bonds have several methods of reimbursement possible. This is called :
- Conventional fixed rate bonds , ie the nominal rate to the purchase does not change over time
- For floating rate , ie the bond yield changes with interest rates
- Linked bonds . This is for example the famous Pinay loan in the 50s which was indexed on the course of Napoleon.
How do bonds work ?
In concrete terms, an individual who buys a bond - say state - lends money to the state for an amount that is equal to the nominal value of the bond . In exchange, the particular key annual interest on the loan, this is called the "coupon" . Upon purchase of the obligation , the State concerned has committed to repay the loan on a specific date . It may be borrowing over five years, ten years or more sometimes .
Example: Suppose that the German bonds maturing April 25, 2016 trading at 3%. This simply means that for a nominal value of 1 euro , the German government will reimburse the euro April 25, 2016 , plus interest of 3% of euro every year on April 25 .
Several types of bonds exist:
- Government bonds represent a debt on the Treasury . In France , it is for example the OAT and German Bund which refers to the euro area.
- The obligations of the public sector. Eg EDF , Air France / KLM etc ...
- The obligations of the private sector. For example: Bouygues Telecom , Veolia etc ...
These three types of bonds have several methods of reimbursement possible. This is called :
- Conventional fixed rate bonds , ie the nominal rate to the purchase does not change over time
- For floating rate , ie the bond yield changes with interest rates
- Linked bonds . This is for example the famous Pinay loan in the 50s which was indexed on the course of Napoleon.
How do bonds work ?
In concrete terms, an individual who buys a bond - say state - lends money to the state for an amount that is equal to the nominal value of the bond . In exchange, the particular key annual interest on the loan, this is called the "coupon" . Upon purchase of the obligation , the State concerned has committed to repay the loan on a specific date . It may be borrowing over five years, ten years or more sometimes .
Example: Suppose that the German bonds maturing April 25, 2016 trading at 3%. This simply means that for a nominal value of 1 euro , the German government will reimburse the euro April 25, 2016 , plus interest of 3% of euro every year on April 25 .
