Bonds are a form of investment where you lend your money to a company or government and receive interest on it. However, there are different types of bonds that differ in their characteristics and risks. One important difference is between normal bonds and subordinated bonds.
Normal bonds are also called senior bonds and have a higher priority of repayment compared to subordinated bonds. This means that in the event of insolvency or default of the company or government that issued the bond, senior bondholders will be paid first before subordinated bondholders get their money back.
Subordinated bonds are also known as junior bonds or subordinated bonds. They are riskier than normal bonds because they are only serviced after the senior bonds have been repaid in the event of the company or government becoming insolvent. This means that in the event of insolvency, the company or government must first pay off senior bondholders before subordinated bondholders receive their money. Therefore, subordinated bonds have a higher risk of default than regular bonds and usually offer higher interest rates to compensate for the higher risk.
In summary, normal bonds have a higher priority for repayment and therefore pose less risk to the investor. Subordinated bonds, on the other hand, have a lower priority for repayment and are therefore riskier, but usually offer higher interest rates. Before investing in bonds, it is important to understand the differences and learn about the risks and rewards of each bond.