Baby Bond


DEFINITION of 'Baby Bond'

Fixed income securities issued in small denominations, generally with a maximum face value of $5,000. The small denominations enhance the attraction of baby bonds to the average retail investor.

Baby bonds are now issued mainly by municipalities, counties and states to fund expensive infrastructure projects and capital expenditures. These tax-exempt municipal bonds are generally structured as zero-coupon bonds with a maturity of between eight and 15 years.


Baby bonds may also refer to a series of small denomination bonds with face value ranging from $75 to $1,000, issued by the U.S. government from 1935 to 1941. These tax-exempt bonds were sold at 75% of face value and had a maturity of 10 years.

In the U.K., baby bonds refer to a type of bond launched in the late 1990s with the objective of stimulating savings for children by their parents. Parents had to make small monthly contributions for at least 10 years; in return, the child received a guaranteed minimum amount tax-free upon turning 18.

  1. Par Value

    The face value of a bond. Par value for a share refers to the ...
  2. Tax-Exempt Sector

    The market niche comprised of investment vehicles exempt from ...
  3. Municipal Bond Arbitrage

    A strategy that consists of building a portfolio of tax-exempt ...
  4. Tax-Equivalent Yield

    The pretax yield that a taxable bond needs to possess for its ...
  5. Municipal Bond

    A debt security issued by a state, municipality or county to ...
  6. Maturity

    The period of time for which a financial instrument remains outstanding. ...
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