Q:

What are outstanding bonds?

A:

Quick Answer

Outstanding bonds are those bonds that have been purchased by an investor and have not yet been paid back by the company to the investor. Any portion of bonds that are not yet paid back would be considered outstanding until they are paid in full, with interest.

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Full Answer

When a person buys a bond, she is essentially loaning a company money for a period of time, usually for months or years. Interest is to be returned to the purchaser, or investor, of the bond. If the company pays the bond and interest back to the investor, then those bonds are considered paid.

In general, when interest rates rise, the price of the outstanding bond falls so that the yield of the older bond is in line with the higher interest rate of the newer-issued bonds. Additionally, when the interest rate falls, the price of the outstanding bond must rise so that the yield of the older bond matches the lower interest rate of the newer-issued bonds.

Bond markets are volatile, and this volatility can be seen in outstanding bonds as well. For example, if an investor owns a 10-year-old bond with a 4 percent yield, and she wishes to sell it in favor of a new bond issued with a 7 percent yield, she must sell the older bond at a discount.

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