24.05.2018

What are the most common types of bonds?

We provide you with an overview of the main types of bonds.

We explain in a nutshell what a bond is here. As well as standard bonds, there are many other different types of bonds and a wide range of securities. Several thousand bonds are listed on the Swiss stock exchange SIX alone, and new ones are being added all the time. They primarily differ in terms of their issuer, the interest they bear and how and when investors receive back the amount invested.

Convertible bonds

Convertible bonds can be converted into investments, such as shares for example, over a fixed period of time. Convertibles are made up of a bond element and an option. As the opportunity to convert can generate added value for the investor, convertible bonds usually bear lower interest or the option is financed with lower interest. This creates opportunities for price gains if share prices rise.

Zero bonds

Or zero-coupon bonds are given their name because no current interest is paid. This means their issue price is lower than the redemption price. Investors therefore only receive one single payment at the end of the term. This could, for example, be a bond which investors purchase for CHF 9,500 but receive CHF 10,000 for at the end of the term.

Floaters

Floaters, which are also called floating rate notes, are bonds with a variable rate of interest. This is adjusted to the current rate of interest at regular intervals. This means the level of periodic interest payments varies. The nominal amount is repaid at the end of the term.

This might interest you too