What is a secured bond?

A secured bond is indeed a bond backed by collateral. This means that if the issuing company defaults on its obligations, bondholders have a claim on specific assets that serve as collateral. This added security typically makes secured bonds less risky for investors compared to unsecured bonds, where there is no collateral backing the bond.

Collateral can include various types of assets, such as real estate or other tangible assets, which can be seized and sold in the event of default to help satisfy the debt. This characteristic of secured bonds provides investors with a higher level of assurance regarding the likelihood of recovering their investment, in contrast with bonds that do not offer such safeguards.

Understanding this concept is crucial for comprehending the different risk levels associated with various types of bonds within the financial markets.