Bonds with Conditions
Investors with subordinated bonds are repaid after the issuer's other loan obligations are met, while senior bondholders are compensated first. If senior and subordinated bonds are made available at the same time, the subordinated issues will typically be offered with higher rates and shorter maturities to make them more attractive.
Floating-rate bonds initially offer unattractively low interest rates, but promise to make periodic rate adjustments to make the bond more appealing to investors.
Pre-refunded bonds are usually AAA-rated corporate or municipal bonds whose repayment is guaranteed by a second bond issue. The issuer usually invests the money raised with the second bond in U.S. Treasury securities that mature at the first bond's initial call date. Pre-refunded bonds generally offer a lower than average coupon rate and are called at the first opportunity.
Insured bonds help mitigate credit risk through the use of bond insurance. If the issuer fails to fulfill its obligations, the insurer will pay interest payments. Because insured bonds reduce risk, they typically offer lower rates.