When you invest in corporate bonds, it is important to know that secured bonds are backed by some form of collateral; for example, a property or some kind of revenue stream. Should the issuer default on interest or principal payments, the bondholders may lay claim to that collateral, mitigating some or all of their losses. Unsecured bonds, by contrast, are backed by no collateral. This is not to say they are necessarily risky – e.g. most government bonds are, technically speaking, unsecured.
What else do you need to know about bonds?
Want to learn more before deciding what’s your optimal bond allocation? You might want to check out these other articles to deepen your knowledge.
- What is a bond? (our main article in the bond section)
- What is a bond yield?
- How do bonds work?
- What happens when a bond comes due?