Bearer Bonds

A bearer bond is a debt instrument issued by a corporation or government body that has no records relating to the ownership of the instrument. Essentially, whoever has custody of the physical bond certificate and attached coupons is the owner of the instrument. Read on to learn more about this rare type of instrument.

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  • Written By
    Thomas J. Brock, CFA®, CPA

    Thomas J. Brock, CFA®, CPA

    Investment, Corporate Finance and Accounting Expert

    Thomas Brock, CFA®, CPA, is a financial professional with over 20 years of experience in investments, corporate finance and accounting. He currently oversees the investment operation for a $4 billion super-regional insurance carrier.

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    Savannah Pittle, senior financial editor for Annuity.org

    Savannah Pittle

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    Savannah Pittle is an accomplished writer, editor and content marketer. She joined Annuity.org as a financial editor in 2021 and uses her passion for educating readers on complex topics to guide visitors toward the path of financial literacy.

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  • Updated: August 21, 2023
  • 4 min read time
  • This page features 4 Cited Research Articles
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APA Brock, T. J. (2023, August 21). Bearer Bonds. Annuity.org. Retrieved June 15, 2024, from https://dev.annuity.org/personal-finance/banking/bonds/bearer/

MLA Brock, Thomas J. "Bearer Bonds." Annuity.org, 21 Aug 2023, https://dev.annuity.org/personal-finance/banking/bonds/bearer/.

Chicago Brock, Thomas J. "Bearer Bonds." Annuity.org. Last modified August 21, 2023. https://dev.annuity.org/personal-finance/banking/bonds/bearer/.

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Key Takeaways

  • A bearer bond is a negotiable debt instrument where the physical holder (or bearer) of the bond certificate and associated coupons, not a registered owner, is the owner and can claim its cash flows.
  • Bearer bonds were once a popular form of debt financing because they were easy to transfer between parties and required minimal administrative effort following issuance.
  • Their use has declined dramatically in recent decades, largely due to the fact the lack of registration invites theft, money laundering, tax evasion, terrorism financing and other criminal behaviors.
  • Today, they are nearly extinct in the U.S. and other advanced countries. They have been replaced by registered bonds, whose ownership is recorded in a central database and transferred electronically.

What Are Bearer Bonds?

A bearer bond is a debt instrument issued by a company or a government body to investors to finance a variety of initiatives. The physical holder (or bearer) of the bond certificate and attached coupons, not a registered owner, is the owner of the instrument and can claim its cash flows.

To obtain interest payments stipulated by a bearer bond, you must furnish the coupons to the issuer (or an agent specified by the issuer). Likewise, to redeem the bond at maturity, you must furnish the bond certificate.

This is very different from the arrangement associated with a registered bond, which is characterized by electronically documented owners. A registered bond’s coupons are payable to the registered owners, as is the bond’s principal amount upon maturity. 

Moreover, when someone sells a registered bond in the secondary market, the listed owner is updated and the new owner receives the rights to the bond’s cash flows. Incidentally, people can also buy and sell bearer bonds in the secondary market.

How Do Bearer Bonds Work?

A simple example can help illustrate how bearer bonds work. Assume the following:

  • You purchase a $10,000 bearer bond issued by the Old Times Corporation on January 1, 2024.
  • The bond has a 10-year term with a maturity date of January 1, 2034, and an annual coupon rate of 6.00%.
  • Coupon payments are scheduled to be paid quarterly on Jan. 1, April 1, July 1 and Oct. 1, with the first payment scheduled for April 1, 2024.

Based on the information above, you can expect the following quarterly coupon payment:

Quarterly Coupon Payment = Bond Par Value × Coupon Rate ÷ Number of Payments per Year

Quarterly Coupon Payment = $10,000 × 6.0% ÷ 4 = $150

Annualized, this produces $600 of interest income. If you hold the bond to maturity, you can expect to be paid $6,000 of interest over the 10-year term, along with the return of your initial $10,000 investment on Jan. 1, 2034.

However, to claim the periodic interest payments, you must clip each coupon and present it to the issuer or registered agent on or after each scheduled payment date. Likewise, to redeem the bond, you must present the bond certificate to the issuer or registered agent at maturity.

Do Bearer Bonds Exist in the U.S.?

Today, bearer bonds are nearly extinct in the U.S. and other advanced countries, largely because the lack of registration invites theft, money laundering, tax evasion, terrorism financing and other nefarious behaviors. 

Government bodies and corporations in the U.S. widely issued bearer bonds between the late 19th century and the late 20th century. They were a popular form of financing because they were easy to transfer between parties and required minimal administrative effort following issuance. However, their use has declined dramatically in recent decades.

After the Tax Equity and Fiscal Responsibility Act of 1982, the U.S. government ceased issuing bearer bonds and took steps to require existing bearer bonds to be changed to registered bonds. Other developed nations have largely followed suit.

Bearer bonds are still legally traded in the U.S., but regulatory and law enforcement agencies keep a close eye on issuances and transfers of these instruments to curb illegal activity. To facilitate the oversight, financial institutions must adhere to rigorous know your customer (KYC) and anti-money laundering (AML) protocols when dealing with bearer bonds.

Read More: Alternatives to Bonds

Redeeming Old Bearer Bonds

U.S. bearer bonds are extremely rare, but every year there are instances of bondholders seeking to cash in coupons and redeem the principal on instruments with long-expired maturity dates. Collecting the cash flows from instruments issued by the U.S. Treasury is fairly easy and entails following their instructions to redeem old bearer bond payments.

Collecting the cash flows from instruments issued by corporations is not as easy and far from guaranteed. In 2010, U.S. law relieved banks and brokerages of the responsibility to honor bearer bond coupon payments and redemptions. If you find a corporate bearer bond, you can check to see if the company still exists or was taken over by another entity. By contacting the surviving company, you may be able to cash in the outstanding coupons and principal. To streamline the process, consult with a fiduciary financial advisor.

Please seek the advice of a qualified professional before making financial decisions.
Last Modified: August 21, 2023

4 Cited Research Articles

Annuity.org writers adhere to strict sourcing guidelines and use only credible sources of information, including authoritative financial publications, academic organizations, peer-reviewed journals, highly regarded nonprofit organizations, government reports, court records and interviews with qualified experts. You can read more about our commitment to accuracy, fairness and transparency in our editorial guidelines.

  1. Dow Jones Professional. (2023, August 2). KYC (Know Your Customer) vs. AML (Anti-Money Laundering). Retrieved from https://www.dowjones.com/professional/risk/glossary/anti-money-laundering/kyc-vs-aml/
  2. TreasuryDirect. (2023). About Treasury Marketable Securities. Retrieved from https://www.treasurydirect.gov/marketable-securities/
  3. TreasuryDirect. (2023). Dealing With Old Paper Treasury Marketable Securities. Retrieved from https://www.treasurydirect.gov/marketable-securities/dealing-with-old-paper-marketable-securities/
  4. Congress.gov. (1982, August 18). H.R.4961 — 97th Congress (1981-1982). Retrieved from https://www.congress.gov/bill/97th-congress/house-bill/4961