Term: Baby Bond
Type: Fixed-income investment
Also known as: Mini bond
Common in: United States
Typical Denomination: $25 face value
Issued by: Corporations, municipalities, and financial institutions
Definition
A baby bond is a type of bond issued in small denominations, typically with a face value of $25. It functions like a traditional bond — paying fixed interest over time — but is more accessible to individual investors due to its low entry cost.
Key Features
- Low Denomination: Usually $25, making them affordable for retail investors.
- Fixed Interest Payments: Interest is typically paid quarterly or semi-annually.
- Long Maturity Periods: Often 10 to 30 years, though some are perpetual.
- Callable: Issuers may redeem the bonds early after a set call date.
- Traded on Exchanges: Many baby bonds are listed on major stock exchanges.
- Unsecured Debt: Most baby bonds are not backed by collateral, increasing risk.
Common Use Cases
- Investors seeking predictable income with lower upfront investment
- Retirement portfolios requiring long-term income streams
- Bond laddering strategies for individual investors
- Diversifying fixed-income holdings
Benefits or Advantages
- Low cost of entry
- Regular, predictable income
- Exchange-traded for liquidity
- Easier access to bond markets for small investors
Examples or Notable Applications
Utility companies and REITs often issue baby bonds to raise capital. A company may issue a $25 baby bond paying 6% annual interest, maturing in 30 years, callable after year 5.
External Links
This post is for informational purposes only and does not constitute financial advice.