Secured Bond

DEFINITION of 'Secured Bond'

A type of bond that is secured by the issuer's pledge of a specific asset, which is a form of collateral on the loan. In the event of a default, the bond issuer passes title of the asset or the money that has been set aside onto the bondholders. Secured bonds can also be secured with a revenue stream that comes from the project that the bond issue was used to finance.

BREAKING DOWN 'Secured Bond'

Because of the pledge of an asset, secured bonds are seen as less risky than unsecured bonds, and they generally provide lower returns than unsecured bonds. Securing a bond with the pledge of an asset is also a way for the bond issuer to lower its interest payments. This means that secured bonds provide investors with a lower return than unsecured bonds because even in the event of default, investors will be compensated at least somewhat for their investment. Some types of secured bonds are mortgage bonds and equipment trust certificates.

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