Do bondholders get paid?

Who are the bondholders?

I'm trying to wrap my head around the difference between being a direct and indirect bondholder.

In this article: A bondholder is someone who buys a bond (bond = IOU). If I'm not mistaken, the US government bonds held by the Fed and Treasury have all been bought at auction. If you look at the market prices of those bonds, they've all fallen to par value (100%). The same holds true for agency debt, except the Treasury.

To keep it simple, let's assume the Treasury and Federal Reserves were directly holding US bonds that were purchased at par value. Now, we can say that the Treasury can sell those bonds at any time in the future to anyone. Why?

It also means that the only way the bondholders can ever lose their investment is if the Treasury goes bankrupt, so the Treasury can't sell them at any price lower than par. If the bondholders sell the bonds to another party, the other party can't resell them for less than par. This means that the bondholders have only one alternative -- if there are any negative events that force the US government to default on its debt (ie, bankruptcy), the Treasury would never be able to reduce the principal of the bonds it owns and will have to default on them anyway.

So if the Treasury were to default on the bonds it owned, the bondholders would be forced to take a loss equal to the difference between what they paid for the bonds (in the above case, zero) and the bond's new par value. They would have no choice but to accept the loss, even though they've invested nothing and paid no interest.

But if I don't understand something, could you please correct me? Thank you. A bond is an IOU from a debtor to a creditor. For example, when you pay someone to mow your lawn or fix your roof, you are paying them in the form of an IOU called a "bond."

The debt that the federal government owes bondholders is an IOU called a bond. The debt owed by a municipality is an IOU called a bond. The debt owed by a homeowner is an IOU called a bond.

Is bondholder the borrower?

Bondholder is a legal term used in bonds, such as mortgages and personal loans.

Does it make sense for the bondholder to own a loan in the first place? If we think of the bondholder as the owner of the loan, would that make sense? The way I see it, if the bondholder is indeed the owner, then does the loan become owned by the bondholder and can it then be resold to another buyer? Does this then mean that this type of transaction is not secured but unsecured? Would it be possible for me to ask you a question about mortgage bonds? My situation right now is that I am thinking of buying a new house in Germany, and I have a bond in my name called a loan. I was wondering is this bond really mine, because you said that I wouldn't lose anything? The house is my new home, as long as I pay back my interest every month.

Re: Bondholder is a legal term used in bonds, such as mortgages and personal loans. I think it depends on how you define "ownership" of a loan. In most cases, if you have the full amount of the outstanding debt owed, you are probably considered the owner. But, in some cases, it may be more complicated than that. There may be a second or third lien on your property, for example, and if those liens were purchased in your name, you could potentially end up having only partial ownership of the loan (ie less than 100%).

What is the difference between a BOND and a LOAN? I've heard both, but I'm a bit confused. So when you say: "loan", does it mean the loan from a bank, not a mortgage? And you said "I've heard both," what do you mean by that? Are they both investments? How are the two different, if they are? Thanks!

What is the difference between bondholders and shareholders?

There are several differences.

First, you need to look at what each party's rights and obligations are. A shareholder has a right to share in the profits of the company. A bondholder has a right to the repayment of the principal that was invested in the bond. However, the interest paid on the bond is taxable income to the bondholder. This interest is taxed as ordinary income because it is considered to be rent or interest.

The reason the interest on the bond is taxed as ordinary income is because it has the characteristics of interest income. Interest income on a bond is treated the same way that interest income from a savings account is treated (see Capital Gains and Losses). That is, it is not treated as regular income. This is because, with the exception of bonds held by retirement accounts, most income earned on the bond is not considered to be from earned income.

The fact that the interest income is from a bond is not sufficient for this treatment to apply. The interest income must be from a debt instrument such as a corporate bond. The bond must also be held outside of a retirement account. Tax law has been set up to allow you to treat your interest income from a bond as capital gains, even though the interest income is from a bond. You could say that it is possible for a company to have a type of stock, but that stock is not treated as a dividend paying stock. Instead, the income from the company is treated as ordinary income. The reason you cannot buy a stock that pays dividends is because the dividends are taxed as regular income. This income would be an added expense to the shareholders of the company.

If you were to sell shares of stock in the company, the company can pay dividends to shareholders. The dividends are considered regular income. This income is taxed at the same rate as ordinary income. The stock is subject to ordinary gain or loss when sold.

Bonds are treated differently. The payments are considered to be a return on your investment. When the bond matures, the bondholder is required to pay the principal back. The interest received from the bond is considered to be rental income. The return on the bond is not considered to be a return on your investment. The reason is that the amount of the payment is not related to the amount of capital that was invested in the bond. The return is simply a rent.

Do bondholders get paid?

That's a very interesting topic, and one where there are a number of different possible answers to the question.

One possibility, which is often put forward on the other side of the aisle, is that private equity (and especially "second-tier" or "middle-market" private equity) is only valuable if it leads to more profit. And that, in turn, means that bondholders and equity holders do get paid -- even if, as we've seen, it ends up being at a cost to some workers. When we get to the bottom of this, we'll be looking at what happens when a firm isn't run as well as it could be.

In general terms, I don't really find the arguments that bondholders don't get paid compelling. After all, if you lend people money and they repay the money plus interest, then you're going to make a profit -- just because the repayment of your loan does not generate immediate cashflow doesn't mean that you don't get paid. But as Matt Crain has argued, while you can make a profit from the return of your money, you also lose the right to take your business elsewhere. If you lend your money to a firm with a productive asset, then you are going to have an effective input into its management; in a sense, you are becoming the firm's manager. And because of this, the firm's decision to increase or decrease capital spending, employ people, close some unprofitable lines of business, etc. Is a function of your decisions.

Of course, if you take this argument one step further, then we're back to Peter Thiel's original argument: there are just some investments that shouldn't be made -- or, in the modern parlance, "there is too much volatility for investors tolerate." There's certainly room for argument in whether certain kinds of investments can be justified by virtue of their ability to generate a profit after a loss. It's fairly easy to get people to pay through the nose for a car and then have the business fail and for people to lose their jobs. But, as I suggested in my last post, it's somewhat less clear whether such arguments apply to things like lending money to businesses for longer than the normal business cycle.