Question

Discuss classification of bonds in detail. Please answer in essay format and provide as much detail as you can.

Answer 1

Classification based on Issuer

Bond market sectors are government and its related sector, corporate and structured finance sector. The government sector includes national organizations like banks , governments, and local governments. Bonds can be done by securitization that transforms transactions into tradeable securities in the  marke. Various companies issue bonds for financing their companies needs

Classification by Creditworthiness of Issuer

The creditworthiness is determined by credit rating agencies . Investment-grade bonds are generally more liquid than high-yield bonds. Junk bonds have lower ratings . The higher the bonds rating the interest rate it will carry is lower .

Classification based on  Maturity

Basing upon the maturity datethey can be as follows: short-term (one to three years), medium-term (10 or more years), and long term (typically 30 year Treasury bonds).

Classification by Interest Rate

Bonds could pay a fixed rate of interest or a floating rate of interest.Floating-rate bonds gets adjustued to market interest rates so they have the risk of interest rate. While in the fixed interest rate interest is paid at a certain percentage as upon fixed at the time of issue.

Bonds can also be classifies as convertible bonds and non convertible bonds where as in covertable bonds the coversion is done from bonds to common stock or euity shares where as in the nonconvertible bond conversion cannot be done,

Bonds can be also classified as collateral and non colleteral bonds here the basis of classifications becoming the collaetral security which is being offered for the bonds issued .

Bonds can also be classified basing upon their redemption values because there are perpetual bonds where this bonds are irredemable only interest payments are being made where as in the zero coupon bonds there will be no interest during the tenure of the bond but there are redeemed at par value on the maturity date