What Is a Debt Instrument?

A debt instrument is a financial tool that is used to raise capital. It is a documented, binding obligation between two parties in which one party lends funds to another, with the repayment method specified in a contract. Some debts are secured by 澳洲幸运5官方开奖结果体彩网:collateral and most involve interest, a schedule for payments, and a time frame to maturity if it has a maturity date. Bond♕s are common types of debt instruments that governments and corporations use to raise capital.

Understanding Debt Instruments

Debt is 🃏typically a top choice for raising capital beඣcause it comes with a defined schedule for repayment. This comes with less risk for the lender and borrower, which allows for lower interest payments.

Any type of instrument primarily classified as debt can be considered a 澳洲幸运5官方开奖结果体彩网:debt instrument. Generally, the instruments used are some form of term debt, credit, or other revolving debt—credit instruments that you can continually draw on—with repayment conditions defined in a contract. Credit cards, 澳洲幸运5官方开奖结果体彩网:lines of credit, loans, and bonds can all be considered debt instruments.

A debt instrument typically focuses on debt capital raised by governments and private or public companies. The issuance markets for these entities vary substantially by the type of debt instrument.

Credit cards and lines of credit can be used to obtain capital. These revolving debt lines usually have a simple structure and only one lender. They are also not typically associated with a 澳洲幸运5官方开奖结果体彩网:primary or secondary market for 澳洲幸运5官方开奖结果体彩网:securitization. More-complex debt instruments involve advanced contract structuring, multiple lenders, a🤡nd investors usually investing through an organized marketplace.

Special Considerations

Debt securities are a more complex debt instrument involving greater structuring. If a business structures its debt to obtain capital from multiple lenders or investors through an organized marketplace, it is usually characterized as a debt security instrument. These are complex, as they are structured for issuance to multiple investors.

Fixed-Income Debt Instruments

U.S. Treasury Bonds

Treasury bonds come in many forms denoted across a 澳洲幸运5官方开奖结果体彩网:yield curve. The 澳洲幸运5官方开奖结果体彩网:U.S. Treasury issues three types of debt security instruments,🐻 bi✃lls, notes, and bonds:

• Treasury bills have maturities ranging from a few days to 52 weeks.
• Treasury notes are issued with two-year, three-year, five-year, seven-year, and 10-year maturities.
• Treasury bonds have 20-year or 30-year maturities.

Each of these offerings is a debt security instrument the U.S. government offers to the public to raise capital to fund the government.

Municipal Bonds

澳洲幸运5官方开奖结果体彩网:Municipal bonds are debt securities issued by state and local governments to fund 澳洲幸运5官方开奖结果体彩网:infrastructure projects. Municipal bond security investors are primarily institutional investors, such as 澳洲幸运5官方开奖结果体彩网:mutual funds. They are available in taxable and tax-exempt formats and are generally considered to be low💧-risk investm🔯ents.

Corporate Bonds

澳洲幸运5官方开奖结果体彩网:Corporate bonds are a type of debt security instrument used to raise capital from the investing public. Corporate bonds are structured with different maturities, which influence their interest rate. They have an active 澳洲幸运5官方开奖结果体彩网:secondary market that retail and institutional investors can use.

Mutual funds are usually some of the most prominent corporate bond investors. However, retail investors with a 澳洲幸运5官方开奖结果体彩网:brokerage account may also be able𒅌 to invest in corporate bonds through their broker.

Alternatively Structured Debt Security Products

There are also alternatively structured debt security products in the market. These are primarily used as debt security instruments by financial institutions. They include a bundle of assets issued as debt security, such as a 澳洲幸运5官方开奖结果体彩网:collateralized debt obꦗligation (CD🔜O). Financial institutions and agencies may choose to bundle products from their balance sheet, such as debt, into a single security. This is then used to raise capital while segꦐregating the assets.

Other Types of Debt Securities

Credit facilities are also considered debt securities. Issued by banks, financial institutions, and other lenders, tꦡhese products allow borrowers to raise capital for different reasons, including making everyday purchases, buying a house or car, or making repairs to their homes. In exchange for the capital, the borrower agrees to repay the lender the principal balance plus interest.

The following are some of the most common types of credi🅘t facilities:

• Mortgages
• Credit cards
• Personal and commercial loans
• 澳洲幸运5官方开奖结果体彩网:Lines of credit (LOCs)
  

The Bottom Line

Debt instruments are any form of debt used to raise capital for businesses and governments. There are many 澳洲幸运5官方开奖结果体彩网:types of debt instruments, but the most common are credit pro♋ducts, bonds, or loans. Each comes wit🌱h different repayment conditions, generally described in a contract.