Definition
The term baby bond refers to indentures and other fixed income securities with a par value that is less than $1,000. The term baby bond can also refer to a series of bonds issued by government entities during the first and second world wars.
Explanation
Publicly-traded corporations typically issue bonds with a par value of $1,000, while government entities may issue bonds with par values in excess of $5,000. Whenever a publicly-traded corporation or government entity issues indentures with par values below what is considered a standard denomination, the security is referred to as a baby bond.
Entities may issue baby bonds to increase their marketability to investors. One of the more commonly issued baby bonds is the zero coupon bond, which has a maturity of up to 15 years, and is typically tax-exempt. These bonds are sometimes referred to as mini munis.
The term baby bond can also refer to indentures issued by government entities during wartime to raise funds. These securities may be issued in relatively small denominations to promote participation among a large portion of the country's citizens.
Related Terms
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