2. By interest charge method

Based on different interest charge methods, the bonds can be classified into simple interest bonds; compound interest bonds, discount bonds and accumulative interest rate bonds.

Simple interest bonds mean the interest is charged on the principal no matter the term is long or short. The interest generated will not be added into principal as base to calculate interest for the next term.

Compound bonds mean the interest generated of one term is added into the principal and the new interest will be calculated against the total of interest and principal in the last term in the rolling way term by term.

Discount bonds mean that no interest rate is regulated on the face. The bonds are issued with the discount price lower than face value. When the bonds are due, the bondholder will repay the principal against the face value.

Accumulative interest rate bonds mean that the interest is calculated based on accumulative rate year by year.

3.According to the forms of bonds

By bonds forms, bonds include physical bonds, certificate bonds, and booked bonds.

Physical bond is a kind of bond with physical face of standard format.

Certificate bond refers to payment receiving certificate after debtors purchase the bonds, not the bonds with standard format developed by issuers.

Booked bond means the bond value is record in the computer book instead of physical notes.

4. According to the terms of maturity

In terms of maturity there are long-term, short-term and middle-term bonds.

5. By forms of holders

In forms of holders bonds can be classified into registered (именные) and bearer certificate (на предъявителя).

Registered bonds mean that the names and addresses of the bonds’ holders are entered in a register which shows the amount of bonds they hold.

Bearer bonds mean that the right to such securities passes to another person by delivery.

6. According to the interest rate

In terms of interest rate there can be convertible bonds, junk bonds and floating rate notes.

A convertible bond is exchangeable for equity or stock. It looks like an ordinary bond, it pays a fixed interest rate, it has a final maturity date, but it also has a feature that permits the holder to redeem it for shares in the borrower.

Junk bonds (бросовые,но высокодоходные) – high yield securities issued by companies that are seen to have a very high risk of default.

Floating rate notes – краткосрочные обязательства с изменяющимся процентом

7. According to the function

Long-term securities: government bonds – gilt-edged securities (gilts –GB, treasury bonds – US )

Short-term bonds are sold and bought by GB and US central banks as a way of regulating money supply

(Treasury Bills)

.

Credit Ratings and Credit Rating Agencies

Standard & Foors Moody's Comments

AAA aaa Best Quality Bonds

Capacity to Pay Interest and Principal is extremely strong

AA +, AA, AA- Aa1, Aa2, АаЗ Very Strong Capacity For

Repayment

A + , A, A- A1, A2, A3 Strong Capacity for Repayment

BBB +, BBB, BBB- Baa1, Baa2, Protection of Interest and Principal

ВааЗ is Moderate

BB + , BB, BB- Ba1, Ba2, ВаЗ Speculative Grade

B + , B, B- B1, B2, B3 Highly Vulnerable to Adverse

Business Conditions

CCC+, CCC, CCC- Caa Identifiable Vulnerability to

Default

CC Ca Highly Speculative. Often in

Default.

_{Review - Bonds and Shares}

Ten of the following twenty-one words and expressions have a direct relation to bonds, and ten others are more likely to be used in relation to stocks or shares. One word logically applies to both categories. Make two lists:

above par	accounting period	blue chip
broker	bull	Convertible
coupon	crash	debt
dividend	Dow-Jones	equity
floating rate	flotation	insider
interest	investment grade	junk
maturity	redeem	zero coupon

Bonds Shares

Both bonds and shares

TRADING IN THE BOND MARKET

.

.When businesses, units of government or individuals cannot satisfy their needs for funds by revenue from sales of goods and services, they can turn to either debt financing (any process by which the firm gets cash or some other assets in return for a promise to pay an agreed upon sum plus interest) or equity financing (any process by which a firm raises funds in return for a share in its ownership and management).

Some sources of funds available to businesses (like issuing stock) are not available to governments. When revenues fall short of expenditures governments go into debt - they borrow short- and long-term funds by issuing bonds.

A bond is an instrument in which the issuer (debtor/borrower) promises to repay to the lender/investor the amount borrowed plus interest over some specified period of time. It should be stressed that one of the most important characteristics of a bond is the nature of its issuer. Issuers include federal (central) governments and their agencies, supranational (such as the World Bank, the Asian Development Bank), municipal governments, and nonfinancial and financial corporations. By far the largest issuers are central governments.

There is no uniform system for classifying the global bond markets. Quite a number of financiers consider it appropriate to use the following classification. From the perspective of a given country, the global bond market can be classified into two markets: an internal bond market and an external bond market. The internal bond market is also called the national bond market. It can be decomposed into two parts: the domestic bond market and the foreign bond market.

The domestic bond market is where issuers domiciled in the country issue bonds and where those bonds are subsequently traded. The foreign bond market of a country is where bonds of issuers not domiciled in the country are issued and traded.

Bonds traded in the US foreign bond market are nicknamed Yankee bonds. In Japan, foreign bonds issued by non-Japanese entities are nicknamed Samurai bonds. Foreign bonds in the United Kingdom are nicknamed bulldog bonds, in the Netherlands-Rembrandt bonds and in Spain - matador bonds.

The external bond market, also called the international bond market, includes bonds with several distinguishing features: 1) they are underwritten by an international syndicate, 2) at issue they are offered simultaneously to investors in a number of countries, 3) they are issued outside the jurisdiction of any single country, and 4) they are in unregistered form. The external bond market is commonly referred to as the offshore bond market, or more popularly, the Eurobond Market. The Eurobond Market is divided into different submarkets depending on the currency in which the issue is denominated.

Computerization in bond markets has reduced costs of trading bonds and made them more convenient to hold and transfer: they are not issued in certificate form - they are only computer entries.