Bearer bond: a risk or a profitable investment?

What is a bearer bond? The bearer bond (IHS) – also bearer bond is a security, by a claim of a creditor against the debtor is evidenced. The bearer bonds of th

Bearer bond: a risk or a profitable investment?
What is a bearer bond?

The bearer bond (IHS) – also bearer bond is a security, by a claim of a creditor against the debtor is evidenced. The bearer bonds of the creditor or owner is not listed by name, resulting in a sale or Transfer simply and can be done. The legal basis of the IHS are to be found in the German Civil code (BGB), §§ 793 et seq. of the civil code.

companies, credit institutions or cooperatives, the use of bearer bonds often if you need to raise capital. In General, the securities of credit institutions – Issuer are issued. This grant the buyers the right to return and the right to repayment of the Nominal value of the bearer bond.

What are the characteristics apply to bearer bonds?

holders of debt securities must have certain information. These include:

  • total par value
  • currency
  • denomination
  • nominal interest rate
  • interest payment date
  • run time
  • termination option
  • Issuer
  • issue date
  • redemption
  • ranking
  • collateral

bearer bonds are divided into fixed-interest and variable-interest securities. To acquire fixed-interest bearer bonds, term, interest rate and currency set and not changeable. In the case of variable interest-bearing bearer bonds, with a quarterly interest rate adjustment and over the entire term. The Person

Cornelia Lang editor is in the legal editorial staff of anwalt.de

What types are there?

the Issuer may issue bearer bonds in many different variants and foreign capital. The following types can purchase investors:

  • government bonds
  • convertible bonds
  • covered bonds
  • certificates

Federal government bonds are issued by the state, whereby he can gain long-term capital. The Federal bond of the Federal Republic of Germany has currently run for a period of 10 or 30 years, and the longest-running of the Federal securities is in order. Federal bonds have a fixed annual interest rate, in addition, the bond at the end of the term will be paid at full face value back.

convertible bonds allow investors to exchange the bond within a specified time period in the shares. This approach allows you to achieve better returns, as soon as the value of the company's developed. Convertible bonds are mostly interest with a lower interest rate.

Pfandbriefe issued by pfandbrief banks, or mortgage banks, and are equipped with a statutory Besicherungsart. There are public sector Pfandbriefe, Mortgage pfandbriefe as well as ship and Aircraft pfandbriefe. Often, this type of bearer bond will be used for refinancing of mortgage loans.

certificates are also used for refinancing, and are used by banks as debt. The investor will receive as the holder of the bond is not a fixed interest payment, but will be involved in the course development of the shares. This means that the buyer is involved not only on profit but also a loss have to take more risk in purchase.

What are the risks in the case of bearer bonds?

Also in the case of bearer bonds, there are risks, for example, if the company insolvency, and as a result, the invested capital is lost completely or partially is log on (Issuer risk). In particular, investors that have subordinated bearer bonds, have a big risk here. Before you invest, you should look at the business and financial situation of the Issuer exactly. The General interest rate level rises, it can come to a price drop in the bond, whereby a change in the price of risk can arise. You need during the course waste the invested money and do not want to wait until the repayment date, you may experience losses.

A liquidity risk can arise when a bond owner wants to liquidate the bond, but not listed on the stock exchange bonds has – these are harder to sell. Even in the case of listed bonds, there may be a liquidity risk if there is no buyer on the market. Inflation rises sharply, can be the real rate of return is, unfortunately, or even negative (risk of inflation). In addition, it could simultaneously increase the level of market interest rates and thus the price of the bond will tumble.

you have made a bond issue in a foreign currency? In this case, you bear as an investor, an exchange-rate risk, because interest rates can vary payments and repayment amount at the end of the term disproportionately from the expected amount in Euro. It was agreed in the bond terms and conditions a debtor's right of termination between the investors and Issuer, and the Issuer pays back the face value in advance, then a so-called consists of the re-investment risk. You, as an investor, can result in loss of yield.

Updated Date: 20 July 2020, 05:26

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