What Is The Bond Rate?

The bond rate is the amount of interest paid by a bond issuer to the purchaser on a given bond.  The interest paid on bonds is normally called the coupon amount, and the rate of the coupon the bond coupon rate.  Bond coupon rates will vary greatly depending on several factors.  Most notably will be the bond issuer. Government bonds such as treasury bonds will typically pay the lowest amount of interest in the form of the bond coupon rate to the owner.  A corporate bond will pay a much higher bond rate.  The reason one pays higher than the other is two-fold.  Principally if the bond issuer is a government entity there is increased security.  While a corporation can fall into bankruptcy, the government is always a sure bet for a bond’s repayment.  With this extra security comes a loss in profit, less risk means they can offer them for lesser bond coupon rates.  The higher risk corporate bonds also have another drawback which requires them to have higher bond rates to increase their appeal: they are taxed by the federal government for the interest amounts paid.  Government bonds do not.  For this reason alone it is important to compare interest rates between government and corporate bonds in the proper context.  A 7% bond rate government issued bond will usually beat a 10% bond coupon rate corporate equivalent when you subtract the taxes which will be paid from the interest profit.

Average Bond Rates

Bond rates are not typically that exciting as means to making high returns from investments.  They are used quite the opposite by investors and fund managers alike to be safe places to invest money with secure and measurable results.

Related posts:

1. What Are Tax Free Bonds?
2. What Is A Municipal Bond?
3. What Is The Interest Rate On A Bond?
4. What Are Construction Bonds?
5. What Are Callable Bonds?