What is the classification of an unsecured bond?

An unsecured bond is classified as a bond that is not backed by collateral. This means that, in the event of default, bondholders do not have a claim on specific assets of the issuer. Instead, they are considered general creditors and rely on the issuer's overall creditworthiness and ability to pay interest and return the principal amount.

The absence of collateral usually implies that unsecured bonds carry a higher risk compared to secured bonds, which are backed by specific assets. As a result, unsecured bonds often offer higher interest rates to compensate investors for the increased risk. Understanding this distinction is crucial in evaluating the risk and potential returns associated with different types of bonds.