What are the nature and characteristics of bonds

Bonds are also a kind of valuable securities, which are the knowledge of bonds that investors must learn. As the name implies, bonds indicate a specific relationship between creditor and debtor. The person holding bonds is the creditor, and the person issuing bonds (government, financial institutions, enterprises) is the debtor. A bond is a written voucher for an issuer to borrow money.

Bonds and stocks have the following similarities:

(1) Both are negotiable securities that can be circulated and transferred.

(2) For issuers, they are all means of raising funds.

(3) For purchasers, they are investment instruments that are paid for in order to obtain a certain income.

(4) The benefits of both are uncertain to some extent.

Compared with stocks, bonds have some unique characteristics:

(1) From the perspective of the issuer, the issuer of shares must be a joint-stock company, while bonds are not subject to this restriction.

(2) From the perspective of the holder, the bond holder is the creditor of the issuer, which is a loan relationship with the issuer, while the stock holder is the shareholder of the joint-stock company, which is purely an investment relationship with the joint-stock company.

(3) The principal is recovered in different ways. The bondholder can claim back the principal from the issuer on the date agreed by the bond, or can claim back the principal through transfer and sale. The stock holder cannot claim back the principal from the joint-stock company, but generally can only sell shares to recover the investment.

(4) The stability of income is different. Generally, the interest rate of bonds is fixed and the yield is relatively stable. Unless the bonds are transferred and sold, the yield is basically not affected by the operating conditions of the issuer. The stock income depends on the operating conditions of the joint-stock company, the amount of profits and their distribution, with more profits and more dividends, but less profits and less dividends. Therefore, bonds are less risky than stocks.

(5) In the bond repayment year, the issuer must give priority to the repayment of the bond interest before paying the dividend of the current year. When the issuing company goes bankrupt and liquidates its assets and debts, it must first use the remaining assets of the company to repay the bonds.