What is a bond?
Contributor: London Stock Exchange |
A bond is essentially a loan that you make to a company or government in return for a regular income. A company may issue a bond if it needs to fund expansion or enter a new market, while a government may need the money to pay for important infrastructure.
Suppose a company issues bonds in units of £10,000 at an interest rate of 6%, promising to pay investors’ money back in six years. If you purchase one of these bonds you will receive £700 each year until the money is repaid.
There is a distinction between ‘wholesale’ bonds, which are tradeable in units of £100,000 or greater, and ‘retail’ bonds, which are tradeable in smaller sizes, often in denominations of £1,000 or less. Most bonds are ‘wholesale’ and not accessible to private investors.
To make the bond market more accessible for ordinary investors, we launched our electronic Order Book for Retail Bonds (ORB) in 2010. The ORB currently makes 180 retail-denominated issues available to investors, from government gilts to supranational and corporate bonds, for as little as £100.
It aims to make the market more efficient and transparent. It does this in three ways: all participants simultaneously access executable prices and have equal opportunity to trade at the best available price; everyone can see the price discovery process through our third-party data feeds; and all private investors are able to see prices on screen and trade in bonds in the same way that they do in shares.