An agreement in the bond contract made between a bond issuer and a trustee that represents the bondholder's interests by highlighting the rules and responsibilities that each party must adhere to. It may also indicate where the income stream for the bond is derived from. Trust indentures may not be included in every bond contract, as some government bonds disclose similar information (the duties and rights of the issuer and bondholders) in a document called the bond resolution. |||One section of the trust indenture dictates the circumstances and processes surrounding a default. A bondholder should be aware of these situations because understanding the proper sequence of events will allow them to take the proper course of action if a default occurs.The section on the trustee's role is important as well, as it gives a clear indication of how unforeseen incidents will be dealt with. For example, if a conflict of interest comes up involving the trustee's role as a fiduciary, in certain trust indentures, the issue must be resolved within 90 days, otherwise a new trustee will be necessary.
A law passed in 1939 that prohibits bond issues valued at over $5 million from being offered for sale without a formal written agreement (an indenture), signed by both the bond issuer and the bondholder, that fully discloses the particulars of the bond issue. The act also requires that a trustee be appointed for all bond issues, so that the rights of bondholders are not compromised. |||The Trust Indenture Act of 1939 was passed for the protection of bond investors. In the event that a bond issuer becomes insolvent, the appointed trustee may be given the right to seize the bond issuer's assets and sell them in order to recoup the bondholders' investments.
A bond or debt investment, usually in a public corporation, that is backed by other assets which serve a purpose similar to collateral. If the company experiences difficulty making payments, the assets may be seized or sold to help specific trust certificate holders recover a portion of their investment. The potential type of company assets used to create a trust certificate can vary, but most typically are other shares of company stock or physical equipment. |||Investors holding trust certificates usually experience a higher level of safety than investors owning unsecured or uncollateralized bonds. But, they also typically earn a lower level of interest than those investors willing to take greater risks. While that may sound like an attractive balance for some investors, investing in trust certificates can be complex because it requires both an understanding of a company's overall financial situationand the nature of the asset that underlies the trust certificate. Special caution should be taken when investing in trust certificates with an underlying asset that is the same company's stock. If the company runs into financial trouble, the asset backing the trust certificate can become as worthless as the trust certificate itself.
An accounting methodology for certain bonds. The unamortized bond discount is the difference between the par of a bond - the value of the bond at maturity - and the proceeds from the sale of the bond by the issuing company, less the portion that has already been amortized on the profit and loss statement. |||The discount refers to the difference in the cost to purchase a bond (its market price) and its par, or face value. The issuing company can choose to expense the entire amount of the discount, or can handle the discount as an asset to be amortized. Any amount that has yet to be expensed is referred to as the unamortized bond discount.
A type of bond fund that invests only in fixed-income instruments with very short-term maturities. An ultra-short bond fund will ideally invest in instruments with maturities around one year. This investing strategy tends to offer higher yields than money market instruments, with less price fluctuations than a typical short-term fund. |||Ultra-short bond funds offer investors greater protection against interest rate risk than longer term bond investments. Since these funds have very low durations, increases in the rate of interest will affect their value less than a medium or long-term bond fund.While this strategy offers more protection against rising interest rates, they usually carry more risk than most money market instruments. While certificates of deposits follow regulated investment guidelines, an ultra-short bond fund has no more regulation than a standard fixed-income fund.
Created in 1798, the United States Department of the Treasury is the government (Cabinet) department responsible for issuing all Treasury bonds, notes and bills. Some of the government branches operating under the U.S. Treasury umbrella include the IRS, U.S. Mint, Bureau of the Public Debt, and the Alcohol and Tobacco Tax Bureau. |||Generally speaking, the U.S. Treasury is responsible for the revenue of the U.S. government, but here are some other key functions:- Printing of bills, postage, Federal Reserve notes, and minting of coins- Collection of taxes and enforcement of tax laws (through the IRS)- Management of all government accounts and debt issues- Overseeing U.S. banks
A U.S. government savings bond that offers a fixed rate of interest over a fixed period of time. Many people find these bonds attractive because they are not subject to state or local income taxes. These bonds cannot be easily transferred and are non-negotiable. |||U.S. savings bonds are one of the safest types of investments because they are endorsed by the federal government and, therefore, are virtually risk free. Although these bonds do not earn much interest compared to the stock market, they do offer a less volatile source of income.
A municipal bond that is backed by the pledge of the issuer (generally a city or municipality) to raise taxes, without limit, to service the debt until it is repaid. Because of this feature, unlimited tax bonds may have higher credit ratings and offer lower yields than other comparable municipal bonds of the same maturity. |||While the issuer of unlimited tax bonds in theory can raise taxes at an unlimited rate, in practice it may be difficult to raise taxes beyond a certain point. One of the factors that credit analysts use to rate such bonds is the ability of the issuer to enforce penalties against and recover taxes from delinquent taxpayers.
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