Bonds are debt instruments that is issued by governments, municipalities, and corporations. They typically have a fixed interest rate for a predetermined period of time. Bonds can be used to raise funds in order to make improvements or pay off debts. There are many reasons why people might want to issue bonds.
What Happens to Bonds After They’re Issued?
Bonds start the day after they are issued. The holder of a bond is entitled to all payments due on that date and subsequent dates until maturity or repayment of the debt in full, whichever comes first. Payments may be made through an annual series of three coupon interest rate payments (the “coupon”) which will typically increase semi-annually as well as one final payment at maturity.
There’s also often a call provision that allows for early redemption before bonds mature if certain conditions have been met like when interest rates drop below what was paid by those issuing the bonds. As long as these features remain intact, it can be difficult for investors who purchased them in their secondary market to know what the future value of their investment will be.
A town might issue bonds for a variety of reasons, including if it needs money now but doesn’t want to raise taxes in the short-term; if they’re doing some sort of large infrastructure project that would take too long with just municipal funding alone; or maybe there’s been an economic downturn and they need more funds than can readily come from local sources like property tax revenue for instance.
The financial institution issuing them is responsible for setting projections based on how much and when things are expected to happen. Investors who buy these bonds then help cover costs by paying back interest rates over time as well as bearing risk associated with changes in external factors such as inflation rates, fluctuations in interest rates, and other economic changes.
Why Might a Town Issue Bonds? of reasons including if it needs money now but doesn’t want to raise taxes in the short term; if they’re doing some sort of large infrastructure project that would take too long with just municipal funding alone; or maybe there’s been an economic downturn and they need more funds than can readily come from local sources like property tax revenue for instance.