What is a Debt Security?

Bonds Are Not Loans

A bond is not a loan. This is a critical distinction under German law. Understanding this difference is fundamental to grasping how debt securities work.

Loan vs. Bond Comparison

What is a Schuldverschreibung?

A Schuldverschreibung (debt security/bond) is a document in which an issuer makes a promise to perform (typically pay money) to whoever holds the document. Under § 793 BGB: > *"If someone has issued a document in which they promise a performance to the holder of the document, the holder may demand the performance from them according to the promise."*

Key Characteristics

• It's a promise, not a loan – You are not "lending money" to the issuer. You are acquiring a security that entitles you to repayment under its terms.
• You are a creditor, not a lender – Your rights arise from the bond's terms and conditions, not from a lending relationship.
• The document is constitutive – The right cannot exist without the document (or book entry).
• Transferability – Unlike loans, bonds can be freely bought and sold on secondary markets.

Types of German Debt Securities

• Inhaberschuldverschreibung (Bearer bond) – The holder is entitled to payment; no name recorded. Most common form.
• Namensschuldverschreibung (Registered bond) – Holder's name is registered with the issuer.
• Orderschuldverschreibung (Order bond) – Transferred by endorsement.