Definition: Unsecured bonds or debentures are bonds that are not backed by some type of collateral. In other words, the bond is only secured by the bond issuer's good credit standing. There are no building, equipment, vehicles, or other assets backing up the bond.
Unsecured bonds are not secured by a specific asset, but rather by "the full faith and credit" of the issuer. In other words, the investor has the issuer's promise to repay but has no claim on specific collateral.
Because the U.S. government, of all issuers, has the best ability to repay, Treasury bonds are considered the safest from default and are very popular with investors.
A debenture is a type of bond or other debt instrument that is unsecured by collateral. Since debentures have no collateral backing, they must rely on the creditworthiness and reputation of the issuer for support.
There are five main types of bonds: Treasury, savings, agency, municipal, and corporate. Each type of bond has its own sellers, purposes, buyers, and levels of risk vs. return. If you want to take advantage of bonds, you can also buy securities that are based on bonds, such as bond mutual funds.
Secured bonds are safer investments, therefore they are issued with lower interest rates and trade at lower yields. To compensate their investors for risk, unsecured bonds are issued with higher interest rates and trade at higher yields.
Treasuries are considered the safest bonds available because they are backed by the “full faith and credit” of the U.S. government.
Here's the lineup of unsecured bonds: Debentures: These bonds are backed only by the issuer's good word and written agreement (the indenture) stating that the issuer will pay the investor interest when due (usually semiannually) and par value at maturity. Income bonds: These bonds are the riskiest of all.Mar 26, 2016
These bonds are not secured by any assets; instead, they are backed by the “full faith and credit” of the issuer, which has the power to tax residents to pay bondholders. Revenue bonds. Instead of taxes, these bonds are backed by revenues from a specific project or source, such as highway tolls or lease fees.
Unsecured debentures are agreements that outline the terms and conditions of a loan. Because there is no specific asset used as security, the interest rates associated are often higher.Oct 30, 2019
An unsecured note is a loan that is not secured by the issuer's assets. Unsecured notes are similar to debentures but offer a higher rate of return. Unsecured notes provide less security than a debenture. Such notes are also often uninsured and subordinated. The note is structured for a fixed period.
Unsecured debt refers to debt created without any collateral promised to the creditor. In many loans, like mortgages and car loans, the creditor has a right to take the property if payments are not made.