The main categories of bonds are corporate bonds, municipal bonds and U.S. Treasury bonds, bonds and foreign exchange, which are simply called “treasuries”. Two characteristics of a loan – credit quality and duration – are the main determinants of the interest rate of a loan. Bond maturities range from a 90-day Treasury bill to a 30-year government bond. Corporate and municipal bonds are generally between 3 and 10 years. Both the Macaulay duration and the modified duration are called “duration” and have the same numerical value (or almost), but it is important to take into account the conceptual differences between them. Macaulay`s duration is a measure of time with units in years and actually only makes sense for an instrument with fixed cash flows. Negative covenants are introduced to encourage borrowers to refrain from any act that could degrade their creditworthiness and their ability to repay existing debts. The most common forms of negative covenants are the financial ratios that a borrower must maintain at the time of closing. For example, most credit agreements require a total debt-to-a-certain income ratio to not exceed a maximum amount, ensuring that a company does not take on more debt than it can afford. As soon as an agreement is broken, the lender usually has the right to recall the borrower`s obligation. In general, there are two types of covenants that are included in credit agreements: affirmative covenants and negative covenants.
A loan is a form of loan: the holder of the loan is the lender (creditor), the issuer of the loan is the borrower (debtor) and the coupon is the interest. Bonds provide the borrower with external funds to finance long-term investments or, in the case of government bonds, to finance current expenditure. Certificates of deposit (CDs) or short-term trading documents are considered money market instruments and not bonds: the main difference lies in the duration of the instruments. . . .