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Finance Glossary

Just call us Bond. Amortized bond.

Over 700 finance terms, Shmooped to perfection.

Unsecured Bond

Definition:

An unsecured bond (think: promise) is a bond where you get little more than a promise that the bond will be paid back. There are no assets backing it up, no strongly written legal language saying you'll make money or even get your initial investment back. 

So why are unsecured bonds of any interest to investors? Well, if management ever didn't pay back a promised bond, their careers would be pretty much totally over. Management has a lot to lose, and as long as you trust them to act in their own best interest, unsecured bonds may be a good bet—they typically pay higher interest rates than secured bonds and usually issuers do pay them. 

Example

Comcast has issued unsecured bonds for decades. They are well known by Wall Street and have never missed a bond payment. As a result, they can issue pretty much anything they want—they've earned the freedom over time. There's nothing guaranteeing the bond but at this point it seems pretty low risk.