A bond is a debt security issued by a corporation, governmental body, or other issuer. When an investor purchases a bond, they are lending money to the issuer and the issuer is obligated to return the principal of the loan plus interest over a predetermined period of time. The terms and conditions to which a bond is subject are set forth in its corresponding bond agreement.

Types of Terms & Conditions

The terms and conditions of a bond will vary depending on the issuer, but some common elements include:

• The maturity date: when the loan must be repaid
• The type of bond: whether it is an investment-grade bond or a high-yield bond
• The size of the bond: the amount that must be repaid
• The rate of interest: how much interest must be paid
• The type of interest payment: whether interest payments are made monthly, quarterly, semi-annually, or annually
• Call provision: whether the bond can be redeemed before its maturity date
• Whether the bond is convertible: if so, what assets it can be converted into
• Whether the bond is secured or unsecured
• Collateral provisions: what assets can be used as collateral for the bond
• Default provisions: what happens if the issuer fails to make payments

Supply & Demand

The terms and conditions of a bond also depend heavily on the balance of supply and demand in the market. When demand is high, the issuer may be able to negotiate more favorable terms and conditions. On the other hand, when demand is low, the issuer may have to accept less favorable terms and conditions.

Rating Agencies

Before a bond is issued, rating agencies such as Moody’s and Standard & Poor’s will often give the bond their ratings based on a variety of factors, such as the creditworthiness of the issuer and the terms and conditions of the bond. Ratings agencies may also assign ratings to bonds after they are issued if the terms and conditions change or if there is a change in the issuer’s creditworthiness.

Conclusion

The terms and conditions to which a bond is subject are set forth in its bond agreement. These terms and conditions will vary depending on the issuer and can be affected by the balance of supply and demand in the market. Additionally, rating agencies such as Moody’s and Standard & Poor’s will often assign ratings to bonds before and after they are issued.