Definition of Guaranteed bond:
Corporate bond whose timely interest payment and principal repayment is guaranteed by a party (usually a parent firm) other than the issuer of the bond (usually a subsidiary firm).
A guaranteed bond is a debt security that offers a secondary guarantee that interest and principal payments will be made by a third party, should the issuer default due to reasons such as insolvency or bankruptcy. A guaranteed bond can be of either the municipal or corporate variety. It can be backed by a bond insurance company, a fund or group entity, a government authority, or the corporate parents of subsidiaries or joint ventures that are issuing bonds.
Corporate and municipal bonds are financial instruments used by companies or government agencies to raise funds. In effect, they are loans: The issuing entity is borrowing money from investors who buy the bonds. This loan lasts for a certain period of time—however long the bond term is—after which the bondholders are repaid their principal (that is, the amount they . originally invested). During the life of the bond the issuing entity makes periodic interest payments, known as coupons, to bondholders as a return on their investment.
How to use Guaranteed bond in a sentence?
- On the downside, guaranteed bonds tend to pay less interest than their non-guaranteed counterparts; they also are more time-consuming and expensive for the issuer, who has to pay the guarantor a fee and often submit to a financial audit.
- A guaranteed bond is a debt security which promises that, should the issuer default, its interest and principal payments will be made by a third party.
- Corporate or municipal issuers of bonds turn to guarantors—which can be financial institutions, funds, governments, or corporate subsidiaries—when their own creditworthiness is weak.
- On the upside, guaranteed bonds are very safe for investors, and enable entities to secure financing—often on better terms—than they'd be able to do otherwise.
Meaning of Guaranteed bond & Guaranteed bond Definition