How do bonds differ from debentures?
Bonds and debentures are both debt instruments. However, debentures are unsecured, which means they are just a promise to pay, while bonds normally have specific assets pledged as security. They’re more like house mortgages – the house secures the mortgage, so if you stop paying interest to the lender, the house can be sold. With bonds, you’re the lender, so if something happens to your payments, you can count on some return should the assets be sold. Just to confuse things, Government of Canada bonds are not secured so they are really debentures. But everyone still calls them bonds!
