Introduction

When we talk about investments in the market financial, we have probably heard the terms “bonds” and “obligations”. Both are fixed income instruments that allow investors to achieve profitability through interest payments. However, although they may appear similar, there are important differences between them.

passes

Bonds are debt securities issued by a company or a government to finance its operations or projects. When purchasing a bond, the investor lends money to the issuing entity in exchange for an interest payment and a promise to return the principal at the end of the bond's term.

• Bonds are issued for a certain period.
• The interest paid is usually fixed for the life of the bond.
• Bonds can be traded on the secondary market.
• The risk of default depends on the solvency of the issuer.

Obligations

Debentures are also debt securities issued by a company or a government. However, unlike bonds, debentures do not have a fixed term and are issued on an ongoing basis.

• Obligations do not have a specific term.
• The interest paid can be variable or fixed.
• They cannot be traded on the secondary market.
• The risk of default depends on the solvency of the issuer.

Key differences

The main difference between bonds and obligations lies in their term. Bonds have a defined maturity period, while debentures do not. In addition, the bonds are traded in the secondary market, which means that Investors can buy and sell the bonds before their term ends. On the other hand, obligations cannot be negotiated.

default risk

Another important difference is the risk of default. Both bonds and obligations are subject to the risk of default, that is, the issuing entity may not be able to pay the interest or return the capital upon maturity. The risk of default depends on the solvency of the issuer. Bonds typically have a higher risk of default than bonds because they do not have a defined term.

Interest

The interest paid is also different in both cases. In the case of bonds, the interest is usually fixed throughout the life of the bond, while in debentures it can be variable.

Conclusion

In summary, bonds and debentures are fixed income instruments that allow investors to achieve profitability through the payment of interest. Although they may seem similar, there are important differences between them in terms of their term, negotiability, risk of default and interest. It is important to know these differences before investing in any of them to make an informed decision.

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