What is a Debenture Bond?

A debenture bond is a bond that is not secured by any assets of the issuer. Instead, the bond is only backed by the reputation and integrity of the issuer. This type of bond typically carries a higher rate of interest than a secured bond, to compensate investors for the increased risk of not having their funds repaid. If the issuer defaults on these bonds, then investors are classified as general creditors of the issuer, which lowers the probability of their being paid in the event of the issuer’s bankruptcy.

Who Issues Debenture Bonds?

Debenture bonds are typically issued by large corporations and governments with excellent credit ratings. Investors are less concerned about these entities defaulting on their payments.