Saturday, September 1, 2007

Income Bonds

Securities that only pay interest when the issuing company earns enough income are known as adjustment or income bonds.

They tend to trade like 0 coupon bonds because their interest is no longer timely or predicatable. For companies in restructuring, income bonds allow the corporation to not completelt default on the investments, but allow them time to make up the interest to the investors.

These are speculative bonds or junk bonds during this period. Investors generally hold income bonds in hopes that the interest will soon begin. Speculators that buy them at deep discounts can realize a potential profit on the debt later on should interest rates fall or the bond begins to perform well - rate of return wise.

Income or adjustment bonds should be fully understood before investing in them or placing them a portfolio. Higher risk bond funds may have a substantial amount of adjustment bonds in their managed portfolio.

http://www.aitraining.com/fglossary.htm - Over 50 complete discussion definitions of key investment products.