Bearer bond

A bearer bond is a debt instrument that is owned by its holder. There is no registration system used by the bond issuer to keep track of who owns each outstanding bearer bond. Instead, bond holders are responsible for sending coupons to the bond issuer at intervals to claim their periodic interest payments. These coupons are attached to each bond certificate, and are removed and submitted as each successive interest payment date is reached. These interest payments are usually made at intervals of every six months. If no coupon is submitted, then no interest payment is made by the issuer.

A bearer bond is considered a negotiable instrument, and so can be sold by its holder to another investor, who in turn can sell it to yet another investor.

Bearer bonds are not common, for two reasons. First, if stolen, their value shifts to whomever now controls the physical documents. Second, bonds are more commonly stored as electronic records, so there is no document from which coupons can be removed. However, they are ideal for those investors who want their ownership of securities to remain anonymous, which is especially attractive for those trying to hide their income from tax authorities.

Related Courses

Corporate Cash Management 
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Treasurer's Guidebook