Define Bear Bond

What Is a Bearer Bond and How Does It Work?

A bearer bond is a fixed-income asset in which the holder, or bearer, owns the security rather than a registered owner. Interest payment coupons are physically tied to the security. When the bond approaches its maturity date, the bondholder must submit the coupons to a bank for payment and then redeem the physical certificate.

Bearer bonds, like registered bonds, are tradable securities having a specified maturity date and a coupon interest rate.

Bearer bonds are nearly extinct in the United States and several other nations due to their lack of registration, which made them perfect for money laundering, tax evasion, and a variety of other illegal activities. They're also at risk of being stolen.

TAKEAWAYS IMPORTANT

• The bearer bond is a tangible document that comes with coupons that may be used to redeem interest payments.

• A bearer bond's owner is the person in possession of it because its ownership is not recorded.

• Bearer bonds are just as vulnerable to theft or loss as cash.

• Despite this, several governments continue to issue bearer bonds.

The Bearer Bond: An Overview

Bearer bonds were issued in the United States by the government and companies from the late nineteenth century to the second part of the twentieth century. They progressively fell out of popularity as contemporary technology rendered them obsolete, investors avoided them due to their vulnerability to loss or theft, and the government prohibited them to combat money laundering.

The Present-Day System

Almost all securities are now issued in book-entry form, which means they are electronically recorded in the investor's name. There is no tangible certificate.

The name of each registered owner of a stock or bond is tracked by a registrar or transfer agent. This assures that bondholders get all of their interest payments, and shareholders get their cash or stock dividends.

When a book-entry security is sold, the registered owner's name is changed by a transfer agent or registrar. This system must be highly automated or it will collapse.

Bearer Bond Policy in the United States

In the United States, the Tax Equity and Fiscal Responsibility Act of 1982 effectively abolished the practise of issuing bearer bonds.

The US Treasury no longer issues bearer bonds, and those that have been issued in the past have long since reached their maturity dates.

Bearer Bonds: Legal Consequences

Because bearer bonds are not recorded in the owner's name, an individual can purchase any quantity of them, present the coupons for payment, and remain anonymous.

After being accused of assisting American residents in evading taxes through bearer bonds, the international financial services giant UBS paid $780 million and agreed to a deferred prosecution deal with the US Justice Department in 2009.

IMPORTANT :Bearer bonds were largely discontinued in the United States in 1982.

Because the custodians do not have the identity of the genuine owner on file, there is no protection or recourse for investors if the physical certificate is stolen.

Bearer Bonds Could Be Worth A Lot Of Money

Even though the maturity dates have long passed, old bearer bonds issued by corporations may or may not have preserved their face value.

A law passed in the United States in 2010 exempted banks and brokerages from the burden of redeeming outdated bearer bonds. 

If a corporate bearer bond is found, the finder can look up the name of the firm that issued it and contact them, if they still exist, or the company that bought them out, if they were taken over. It's possible that the bearer bond will be fulfilled.

Bearer Bond Security Issues Examples

The actual certificates of bearer bonds are usually kept in a bank safe deposit box or in a home safe. The bond must be handed to a bank in person or by courier to be redeemed at maturity.

Interest payments might also be difficult to get since coupons sometimes get misplaced in the mail.

Bearer bonds can be problematic for the owners' successors. This can be prevented if correct paperwork is attached to the owner's will.