Welcome to the Investors Trading Academy talking
glossary of financial terms and events. Our word of the day is “Debentures”
A debenture is a promissory note or a corporate bond which is backed generally only by the
reputation and integrity of the borrower and by the borrower's specific assets. When unsecured, it is called a bare debenture
or naked debenture; when secured by a charge on a specific property, it is called a mortgage
debenture. A type of debt instrument that is not secured
by physical assets or collateral. Debentures are backed only by the general
creditworthiness and reputation of the issuer. Both corporations and governments frequently
issue this type of bond in order to secure capital. Like other types of bonds, debentures are
documented in an indenture. Debentures have no collateral. Bond buyers generally purchase debentures
based on the belief that the bond issuer is unlikely to default on the repayment. An example of a government debenture would
be any government-issued Treasury bond or Treasury bill. T-bonds and T-bills are generally considered
risk free because governments, at worst, can print off more money or raise taxes to pay
these types of debts.