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Glossario

Plain Vanilla Bond

Categoria — Tipi di obbligazioni

Plain Vanilla Bond is the most basic version of a bond. The term "Plain vanilla" refers to the basic variety of ice cream in Anglo-Saxon countries.

The main characteristics of plain vanilla bonds are:

  • the fixed coupon rate and coupon period;
  • fixed maturity date;
  • fixed denomination.

 

Holders of such bonds receive a regular fixed coupon yield and payment of par value at maturity, which makes it easy to assess the yield of such type of bond. On the one hand, receiving a fixed income from such bonds reduces the risk of volatility for the investor, which makes it safer to receive such income compared to bonds that include additional parameters due to their influence on the market price. However, it should be noted that in the realities of markets with low liquidity and high inflation, investing in this type of bond can lead to losses.

Also, when investing in plain vanilla bonds, you should pay attention to the monetary policy of the country that owns such securities. For example, the long-term holding of the key rate at the same level or its growth together with the growth of bond yields will increase investor interest in fixed income instruments. However, in anticipation of an increase in the interest rate, an investor can invest in bonds with additional parameters (for example, callable bonds or step-up bonds), which, compared to investing in plain vanilla bonds, can bring an additional income. 

Examples of such bonds: Goldman Sachs, 4.85% 15may2022, USD, UniCredit Bank AG, 5.46% 14dec2022, EUR

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