|Course 107: Secured and Unsecured Bonds|
|Types of Unsecured Bonds|
Below are some common types of unsecured bonds.
To meet its financial needs, the U.S. government issues Treasury bonds. It issues them with the full faith and credit of the federal government. Because the U.S. government, of all issuers, has the best ability to repay, Treasury bonds are considered the safest from default and are very popular with investors.
General obligation bonds (GO bonds) are municipal bonds without backing. The creditworthiness of the issuing city or state is the only security they provide. GO bonds finance municipal operations. In the event that an issuer cannot repay its debts to bondholders, it may have to lay off employees, sell some assets, or raise taxes.
Income bonds are the bonds most junior of all. Their payments are made only after the issuer earns a certain amount of income. The issuer is not bound to make interest payments on a timely or regular basis if the minimum income amount is not earned. The investor is aware of the risks involved and may be willing to invest in these bonds if there is an attractive coupon rate or high yield-to-maturity.
Convertible bonds give the investor the option to convert the bonds into shares of common stock. The conditions, the time frame, and the price must all be set down at the time the bonds are issued.
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