Debt Securities - Types Of Bond Issuance

Bearer Bonds

Bonds which are issued in coupon or bearer form do not record the owner’s information with the issuer and the bond certificate does not have the legal owner’s name printed on it. As a result, anyone who possesses the bond is entitled to receive the interest payments by clipping the coupons attached to the bond and depositing them in a bank or trust company for payment. Additionally, the bearer is entitled to receive the principal payment at the bond’s maturity. Bearer bonds are no longer issued within the United States; however, they are still issued outside the US.

Registered Bonds

Most bonds are now issued in registered form.  Bonds that have been issued in registered form have the owner’s name recorded on the books of the issuer and the buyer’s name will appear on the bond certificate.

Principal Only Registration

Bonds that have been registered as to principal only have the owner’s name printed on the bond certificate.  The issuer knows who owns the bond and who is entitled to receive the principal payment at maturity.  However, the bondholder will still be required to clip the coupons to receive the semi-annual interest payments.

Fully Registered

Bonds that have been issued in fully registered form have the owner’s name recorded for both the interest and principal payments.  The owner is not required to clip coupons and the issuer will send out the interest payments directly to the holder on a semi-annual basis. The issuer will also send the principal payment along with last semi-annual interest payment directly to the owner at maturity. Most bonds in the US are issued in fully registered form.

Book Entry / Journal Entry

Bonds that have been issued in book entry or journal entry form have no physical certificate issued to the holder as evidence of ownership.  The bonds are fully registered and the issuer knows who is entitled to receive the semi-annual interest payments and the principal payment at maturity.  The investor’s only evidence of ownership is the trade confirmation, which is generated by the brokerage firm, when the purchase order has been executed.

Bond Certificate

If a bond certificate is issued, it must include:

  • Name of issuer
  • Principal amount
  • Issuing date
  • Maturity date
  • Interest payment dates
  • Place where interest is payable (paying agent)
  • Type of bond
  • Interest rate
  • Call feature (if any or non callable)
  • Reference to the trust indenture

 

Bond Pricing
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