1. Investors
  2. Ways to invest
  3. Bonds
  4. Different types of bonds

Different types of bonds

Page last updated: 14 Aug 2017

Asset-backed security

Backed by another asset, such as housing loans.

Corporate bond

Offered by listed or unlisted companies raising money.

Callable/redeemable bond

Can be bought back by the issuer. Investors will lose their interest payments once this happens.

Convertible/'coco's/hybrid bond/capital note

Can be converted into another type of security such as shares, or for cash, which can be worth much less than the sum you originally invested. The bond issuer may also be able to stop or limit the interest they pay. See more on capital notes.

Eurobond

An international bond issued in Euros, or in a currency not native to the country where it is issued. An example is a bond issued by a group of banks in Singapore, denominated in US dollars, sold to international investors. These are usually sold to institutional investors. 

High yield bond

Also known as junk bonds, they offer investors high-interest payments but they are also high risk and have a high probability of payment default.

Investment grade bond

Issued by companies with a strong financial position.

Kauri bond

Issued in NZ dollars by overseas issuers.

Municipal bond

Issued by local government.

Perpetual bond

A bond with no fixed maturity date. However, issuers usually include an option to recall perpetual bonds when it suits them.

Putable/put bond

Allows investors to force the issuer to repurchase the bond at set dates before the bond matures. Can be beneficial if investors expect interest rates to rise and the value of bonds to fall.

Redeemable/callable bond

Can be bought back early by the issuer, at a price fixed by them. This usually happens when the issuer finds they can get a cheaper loan elsewhere.

Secured bond

Secured against an income stream, or an asset. Considered less risky than an unsecured bond.

Senior bond

Ranked higher in an issuer’s repayment list if they face financial difficulty.

Subordinated bond

Ranked low in an issuer’s repayment list if they face financial difficulty.

Unsecured bond

Not backed by any collateral or asset. Unsecured bondholders are paid after secured bondholders when a company repays its debts.

Uridashi bond

Issued outside of New Zealand in a high yield currency (such as the NZ dollar), and sold to Japanese investors.

Zero-coupon bond

Doesn’t pay interest (a coupon) like other bonds. Instead, you will receive a discount when you purchase the bond and hope you make a profit when the bond is redeemed at maturity. Zero-coupon bonds tend to go up and down in price a lot more than regular coupon bonds.