Bond security is typically provided by what?

• A. A claim on the issuer's assets
• B. A guarantee by a central bank
• C. A derivative instrument
• D. A pledge by the regulator

Answer: (A)

Bond security is the protection backing a bond to reduce risk for the investor. The typical form is a claim on the issuer’s assets. If the issuer defaults, bondholders with secured bonds can lay claim to pledged assets or specific collateral to help repay the debt. This is how secured bonds differ from unsecured ones, which rely only on the issuer’s overall creditworthiness. Examples include mortgage bonds backed by real property or other assets and bonds secured by particular revenue streams. The other options aren’t standard ways bonds are secured: central bank guarantees aren’t a typical feature of ordinary bonds, derivatives are separate financial instruments, and a pledge by a regulator isn’t how bond security is provided.