A bond is a type of debt securities that enables its holder to receive from the issuer a nominal value and interest (coupon) or discount at defined period.
Bonds are divided into the following types:
- Fixed rate bond - coupon remains unchanged;
- Floating-rate note - a bond with a variable interest rate;
- Convertible bond - a fixed-income debt security that pays interest, but can be converted into common stock or equity shares;
- Inflation-indexed bond - coupon payment and nominal value may vary depending on inflation;
- Discount bond - is a coupon free bond that is issued for less than its nominal value.
Depending on turnover terms, bonds can be short, medium and long term.
- Short-term bond - a bond with a circulation period of up to one year;
- Medium term bond - a bond with a circulation term of one to three years;
- Long-term bond - a bond with a circulation term of more than three years.
Bonds have nominal (par or face value) and market value. The issuer determines the par value of the bonds, while the market value varies depending on securities market’s conditions.
Currently, there are government bonds, corporate bonds and short-term notes issued by the Central Bank in Azerbaijani capital market.
- Government bond - issued by a government;
- Corporate bond - issued by a private entity to attract additional funds;
- Central Bank notes - uncertificated securities that issued for a term of up to one year. Short-term notes are used as a monetary policy tool to regulate the circulating money.
According to the Law of the Republic of Azerbaijan “On Securities Market”, the par value of the bonds may be in national or in foreign currencies.