A bearer bond is a type of debt security that is not registered to any owner. Instead, possession of the bond itself represents ownership. This means that whoever physically holds the bond can claim the interest payments and the principal at maturity without needing to identify themselves to a financial institution.
Bearer bonds are issued in physical form, typically as certificates, and they have coupons attached that provide the interest payments. Investors must present these coupons when collecting interest, highlighting the key characteristic of being ‘bearer’ instruments, which emphasizes physical possession as proof of ownership.
The relevance of bearer bonds in finance lies in their anonymity and ease of transfer. Because they do not require registration, they can easily be bought, sold, or exchanged. However, this same feature also poses risks such as loss or theft, making them less common today. Due to regulatory concerns, many countries have moved towards registered bonds, which provide a clearer ownership record and aid in preventing fraud or money laundering.
