DEFINITION of 'Bearer Instrument'

A bearer instrument, or bearer bond, is a type of fixed-income security where no ownership information is recorded and the security is issued in physical form to the purchaser. The holder is presumed to be the owner, and whoever is in possession of the physical bond is entitled to the coupon payments.

To receive coupon payments, the bondholder must clip the coupons attached to the bond and submit them for payment. This contrasts with book-entry, where ownership information is noted in a computer database and there are no physical bond certificates.

BREAKING DOWN 'Bearer Instrument'

It has not been legal to issue bearer bonds in the U.S. municipal or corporate markets since 1982. The only bearer bonds available in the secondary market are long-dated maturities issued before this date, which are becoming increasingly scarce.

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