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Bonds securitise the right to repayment of the nominal value plus interest. They are issued by banks, states or companies and sold via banks, occasionally also directly via the stock exchange, and then usually admitted to trading on the stock exchange. By issuing bonds, issuers procure debt capital for their long-term financing. The most important parameters of a bond are its terms, interest payment and the type of interest rate. All rights evidenced by a bond are laid down by law, but are usually supplemented by additional bond conditions.
For bond investors, the rating is very important, i.e. the assessment of the solvency (creditworthiness) of a debtor by analysts from a rating agency. Ratings range from the best "AAA rating" to the worst "D rating". In between, there are corresponding gradations. From BBB onwards, bonds are referred to as investment grade, BB as high-yield, high-yield or even junk bonds. German government bonds are considered to be one of the safest forms of investment. Another type of increasingly popular bond is corporate bonds, which are also offered by smaller companies via the stock exchange.
Depending on the type of interest you can differentiate as follows:
Fixed-rate bonds with a constant interest rate over the entire term, so-called straight bonds.
Bonds with variable interest rates during the term - the interest rate depends on the reference interest rate, known as the floater.
Bonds without a nominal interest rate, i.e. zero coupon bonds where the interest and/or principal payments are linked to certain events determined in advance by the issuer.
In principle, the price of bonds is expressed as a percentage of the nominal value of the bond. For example, if a bond is quoted at 105 percent, buyers must pay 105 percent of the nominal value of the bond. At maturity, the issuer pays back 100 per cent of the nominal value of the bond to the investors.
A special type of bond is the Jumbo Pfandbrief with a volume of at least 1 billion euros.