Fixed rate bonds

These have a coupon which is the same throughout the life of the bond.

Convertible bonds

These let a bond holder exchange a bond for a number of shares of the issuer's common stock (equity).

Floating rate notes (FRNs)

These have a coupon, whose value ‘floats’ or changes because it is linked to an Index. Common Indices include: money market indices, such as LIBOR or Euribor.

High yield bonds

These are bonds which are rated below investment grade by the credit rating agencies. As these bonds are more risky than investment grade bonds, investors expect to earn a higher yield. These bonds are also called junk bonds.

Zero coupon bonds

These are bonds which do not pay any interest to the holder. They are issued at a substantial discount from par value. The bond holder receives the full principal amount on the redemption date. Zero coupon bonds are often created from fixed rate bonds by a financial institution by separating, or "stripping off", the coupons from the principal. In other words, the separated coupons and the final principal payment of the bond are allowed to trade independently.

Inflation linked bonds

These are bonds where the principal amount is indexed to inflation. The interest rate is lower than for fixed rate bonds with a comparable maturity. However, as the principal amount grows, the payments increase with inflation. The UK government was the first to issue inflation linked gilts in the 1980s. Treasury Inflation-Protected Securities (TIPS) and I-bonds are examples of inflation linked bonds issued by the US.


UK government issued bonds.

Discount bonds

These are short-term bonds, such as the US Treasury Bills, which are always issued at a discount, and pay the par amount at maturity rather than paying coupons throughout the term.

Exchangeable bonds

These allow the bonds to be exchanged for the shares of a different corporation, other than the issuer.

Asset-backed securities (ABS)

ABS are bonds whose interest and principal payments are backed by underlying cash flows from other assets. Examples of asset-backed securities are mortgage-backed securities (MBSs), collateralized mortgage obligations (CMOs) and collateralized debt obligations (CDOs).

Subordinated bonds and senior bonds

Subordinated bonds have a lower priority than other bonds of the issuer in case the issuer goes into liquidation. Senior bonds are those bonds which are first in line for repayment under such circumstances.

In case of bankruptcy, there is a hierarchy of creditors. First the liquidator is paid, then government taxes, etc. The first bond holders in line to be paid are senior bond holders. After they have been paid, the subordinated bond holders are paid. As a result, the risk is higher. So subordinated bonds usually have a lower credit rating than seniors. The main examples of subordinated bonds can be found in bonds issued by banks, and asset-backed securities. The latter are often issued in tranches. The senior tranches get paid back first, the subordinated tranches later.

Perpetual bonds or perpetuities

These are bonds which have no maturity date.

Municipal bonds

These are bonds issued by a US state, city, local government, or their agencies. Interest income received by holders of municipal bonds is often exempt from US federal income tax and from the income tax of the state in which they are issued, although municipal bonds issued for certain purposes may not be tax exempt.

Bermudan callable bonds

These have several call dates, which typically are the same as the coupon dates.

European callable bonds

These have only one call date and may be thought of as a special case of a Bermudan callable.

American callable bonds

These are bonds which can be called at any time until the maturity date.

Death put or survivor’s option

This is an optional redemption feature on a debt instrument allowing the beneficiary of the estate of the deceased to put (sell) the bond (back to the issuer) in the event of the beneficiary's death or legal incapacitation.