What is an insured bond?
The insured bond is a trading debt tool on which income payments are insured by a third party. Bond insurance protects bond holders from loss if bond issuers fail on debt payments. Insurance or its lack has a direct impact on the return paid by the bond issuer and the bond store.
Governments and private companies sell bonds to raise money for projects such as new projects of construction and expansion. Bond conditions range from six months to 30 years and bond holders receive interest payments for monthly, quarterly, half -year or annual basis. Government bonds are secured against future tax revenues, while income bonds are supported by income from some projects or enterprises such as Tollbooth income or public service accounts. Corporate bonds are supported by the financial force of the company that issues a bond while bonds supported by a mortgage are secured against commercial paymentsch or residential mortgages. Gdlopis with tax backups are considered the least risky, while bonds supported by a mortgage are considered to be the most risky; However, all bond holders are exposed to a certain degree of failure.
bond insurers are usually private investment companies or insurance companies. Companies sell insurance contracts to the issuer of bonds and agree to recognize interest payments if the bond issuer fails on the debt. Insurance contracts are purchased before bonds are sold for the first time so that potential investors know that they are buying insured bonds from the very beginning. Many types of bonds can be sold on the secondary market, but the insurance remains introduced regardless of the change of ownership of the bond. A conservative investor with a low level of risk tolerance may prefer insured bonds rather than uninsured bonds because the presenceThe insurance significantly reduces the main risk.
PAID bond yields reflect the degree of risk with which investors are forced to fight. Low -risk bonds, such as bonds issued by national governments in developed countries, tend to pay lower returns because these bonds are considered a low risk. Bonds supported by a mortgage tend to pay higher returns due to a relatively high level of risk that bond holders claim. Bond holders who buy insurance contracts may pay lower revenues because the insurance reduces the level of the main risk. While the insurance of insurance can increase the cost of the bond issuer, the insurance also reduces the long -term interest costs.
Some investors perceive insured bonds as an investment without risks. In fact, bond holders may lose money on the insured bond if the insurer becomes insolvency or fails to honor his duties. Insurance companies such as bond issuers, PThey are separated by credit rating, so many investors only buy bonds that are insured by companies with a good credit rating.