Search Investopedia

Baby Bond

Filed Under » ,
Dictionary Says

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.

Investopedia Says

Investopedia explains 'Baby Bond'

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.

Related Definitions

  •

    Municipal Bond

    A debt security issued by a state, municipality or county to finance its capital expenditures. Municipal bonds are exempt from federal taxes and from most state and local taxes, ...
    Read More »

  • Par Value

    1. The face value of a bond. 2. A dollar amount that is assigned to a security when representing the value contributed for each share in cash or goods.
    Read More »

  • Tax-Exempt Sector

    The market niche comprised of investment vehicles exempt from federal taxes. Nearly all investments in this area are municipal bonds, which cannot be taxed owing to the fact that U.S. ...
    Read More »

    • Tax-Equivalent Yield

      The pretax yield that a taxable bond needs to possess for its yield to be equal to that of a tax-free municipal bond. This calculation can be used to fairly compare the yield of a ...
      Read More »

    • Municipal Bond Arbitrage

      A strategy that consists of building a portfolio of tax-exempt municipal bonds and simultaneously hedging the duration risk of the portfolio through the short sale of equivalent taxable ...
      Read More »

Articles Of Interest

Sponsored links
Hot Definitions
Partner Links
Suggested Definitions