Types of Bonds and Bond Yields

1.     Catastrophe bonds:
A bond that allows the issuer to transfer “catastrophe risk” from the firm to the capital markets. Investors in these bonds receive a compensation for taking on the risk in the form of higher coupon rates. In the event of a catastrophe, the bondholders will give up all or part of their investments. “Disaster” can be defined by total insured losses or by criteria such as wind speed in a hurricane or Richter level in an earthquake.

2.     Eurobond:
A bond that is denominated in one currency, usually that of the issuer, but sold in other national markets.

3.     Zero-coupon bond:
A bond that makes no coupon payments. Investors receive par value at the maturity date but receive no interest payments until then. These bonds are issued at prices below par value, and the investor’s return comes from the difference between issue price and the payment of par value at maturity.

4.     Junk bond:
 A bond with low credit rating due to its high default risk. They are also known as high-yield bonds.

5. Callable bonds:
Callable bonds should offer higher promised yields to maturity to compensate investors for the fact that they will not realize full capital gains should the interest rate fall and the bonds be called away from them at the stipulated call price. Bonds often are issued with a period of call protection. In addition, discount bonds selling significantly below their call price offer implicit call protection.

Bonds and Yields
These are all signs that bonds with lower credit rating have higher yields, and bonds with longer maturities have higher yields also.