10 Difference Between Secured and Unsecured Bond

1. Secured bonds are those that are collateralized by an asset. 2. Also referred to as debentures, an unsecured bond is a type of bond that is not secured against collateral. 3. Typically, secured bonds are issued by corporations and municipalities. The majority of corporate bonds, however, are unsecured. 4. Although one might suppose that secured debt represents a lower risk to bondholders than unsecured debt, in practice the opposite is often true. Investors buy uncollateralized debt because of the issuer's reputation and economic strength. 5. In an unsecured bond, the bondholder cannot recover the value of the investment if the bond issuer defaults. 6. The possibility of default and the inherent risk in government unsecured bonds is very low compared to corporate bonds. 7. In both instances, unsecured bonds by economically strong issuers and secured bonds by weaker issuers, the unsecured bond may have a lower interest rate at issuance than the secured bond.