Bearer Bond

Published Aug 10, 2023

Definition of Bearer Bond

A bearer bond is a type of debt security that does not have a registered owner. That means it is not registered in the issuer’s records and can be transferred from one person to another simply by handing it over. The holder of the bond is the legal owner and is entitled to the interest payments and the principal at maturity.

Example

To illustrate this, let’s look at an example. Imagine John buys a bearer bond from a bank for $1,000. The bond pays an annual interest rate of 5% and matures in 10 years. Now, John can hold on to the bond until it matures and receive the principal plus interest payments. Alternatively, he can transfer the bond to someone else simply by handing it over. That means the new owner is now entitled to the interest payments and the principal at maturity.

Why Bearer Bonds Matter

Bearer bonds are a popular investment instrument, especially for investors who want to remain anonymous. That is because the issuer does not keep records of the owner, so the investor does not have to disclose his identity.

However, this makes bearer bonds attractive for tax evasion and money laundering. That is why many countries have banned them or heavily restricted their use. Nevertheless, bearer bonds are still used in some countries and can be a useful investment tool for investors who want to remain anonymous.