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Glossary

Secured bonds

Category — Bond Types
Secured bond is a type of debt that is secured by a specific asset of the issuer. The asset serves as collateral. If the issuer fails to meet its bond obligations, title to the asset passes to the bondholders.

Secured bonds can also be secured by cash flow from the project for the implementation for which the issue was issued. This type of bond is often issued by municipalities for the implementation of a specific investment project.

Secured bonds are more secure than unsecured bonds because investors receive at least partial compensation in the event of default by the issuer. Secured bonds typically offer lower yields in exchange for higher security.

This type of bonds can be secured by a mortgage or fixed assets. For example, Mortgage-backed securities (MBS) are provided directly by mortgage objects, as well as by streams of mortgage payments. In such a case, losses in the event of a borrower’s default can arise only if the underlying asset has fallen in value, has become unusable, or cannot be transferred due to delays in liquidation proceedings.

In the event of a default, if the issuer has free funds for redemption, payments will be made to the holders of the secured bonds in the first place.

Secured bonds Example.
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