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Types of Bonds

Types of High-Yield Bonds

As the high-yield market has grown, companies have become more creative with the shape and structure of bond issues. The following varieties of issues may be found in today’s market:

Straight cash bonds are the high-yield market’s “plain vanilla” bond, offering a fixed coupon rate of interest that is paid in cash, usually in semiannual payments, through the maturity or call date.

Split-coupon bonds offer one interest (coupon) rate in the early years of the bond’s life, followed by a second interest rate in later years. Split-coupon issues in which the interest rate increases in later years are also called step-up notes.

Pay-in-kind bonds allow the issuer the option of paying the bondholder interest either in additional securities or in cash.

Floating-rate and increasing-rate notes (IRNs) pay fluctuating or adjusted rates of interest based on an interest rate benchmark or a schedule of payments.

Extendable reset notes give the issuer the option of resetting the coupon rate and extending the bond’s maturity at periodic intervals or at the time of specified events. In exchange for these options, the bondholder has the right to sell, or “put,” the bond back to the issuer.

Deferred-interest bonds pay no interest to the bondholder until a future date.

Zero-coupon bonds (“zeros”) are sold at a deep discount to their face value upon issuance and pay no interest to the bondholder until accreted at maturity.

Convertible bonds may be converted into shares of another security under stated terms. The security is often the issuing company’s common stock.

Multi-tranche bonds offer bondholders several tiers of investments within the same issue. Typically, the tiers may vary in their targeted maturities and credit quality.


All information and opinions contained in this publication were produced by the Securities Industry and Financial Markets Association from our membership and other sources believed by the Association to be accurate and reliable. By providing this general information, the Securities Industry and Financial Markets Association makes neither a recommendation as to the appropriateness of investing in fixed-income securities nor is it providing any specific investment advice for any particular investor. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and sources may be required to make informed investment decisions.