Let's quickly talk through the main principles of bonds that apply regardless of whether we talk about government bonds or bonds issued by, for example, corporates. Bonds are a form of debt instrument, and much like in the case of loans, the bond investor lends money to the bond issuer and the issuer promises to repay the amount at a specific date in the future which is called the maturity date. Between the issue date and the maturity date, bond investors typically receive regular interest rate payments. So what's the difference between a loan and a bond? Well, there are actually many differences. However, I believe that in this context, the most important one is that bonds usually are easier to trade in and out than loans. For many bonds there's a relatively liquid secondary market which means that investors who lend money to the issuer initially for let's say seven years, can decide to sell the bond to another investor on any business day and therefore get their money back even if the maturity date has not been reached. And yes, loans can be sold as well, but overall selling a loan is a lot more complex and will require more time to completion and it's likely to be costly than selling a bond. And here are the most important characteristics for any bond. The issue is the entity that is borrowing the money. This is also, of course the entity that should repay the money and therefore determines the credit risk the investor will be exposed to. The maturity date is a date at which the bond will be redeemed, so the date at which the bond holder will receive the money back. The coupon is the rate of interest that is paid to the bond holder until maturity. It is usually expressed as a percentage of face value and always given as a per annum rate. The face value, also known as the notional or principal amount, is the amount that will be repaid to the bond holder at maturity, and this is given as a currency amount, for example, 10 million US dollars. As mentioned previously, bonds are tradable in the secondary market. The prices at which bonds can be bought or sold at are quoted in percentage terms. So a bond could, for example, have a price of 102%. This percentage refers to the face value. So if a bond trades at a price of 102% and an investor buys a hundred million used dollar face value, the price in dollar terms is $102 million.

The majority of bonds have a fixed maturity date and this means that the date on which investors will get their money back is set when the bond is issued and does not change over the life of the bond. In addition, the vast majority of bonds are so-called bullet bonds. Bullet bonds are repaid in one single payment at the maturity date, and there's no amortization or partial payment between issuance date and maturity date. But of course, there are exceptions to these roles. They are, for example, amortizing bonds, and these are bonds whose face value declines of the life of the bond as part of the face value is repaid before maturity based on a preset schedule. Another variation are callable bonds. Callable bonds also have a preset maturity date, but in addition, the issuer has a right to repay investors prior to that date and stop coupon payments accordingly. Extendable bonds work in the opposite way. There's a preset maturity date but the issuer has a right to extend the maturity of the bonds on numerous future dates. And in case of an extension, the coupon rate generally increases by a certain amount. So in both cases, callable and extendable investors provide the issue with an option to change the maturity of the bond and in exchange will receive a higher coupon payment.