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Brady BondsBrady bonds are Dollar denominated bonds, named after U.S. Treasury Secretary Nicholas Brady Bonds, traded on the international bond market, allowing emerging countries to transform nonperforming debt into Brady bonds. Commercial banks can repackage countries' loans into bonds. They are collateralized by high grade securities like Treasuriess and have maturities of 10-30 years. Brady Bonds make debt more liquid and ease financing of Less Developed Countries. Brady Bonds come with a large amount of options complicating the analysis. Brady Bonds are issued to replace existing government debt. The par value of the bonds is below that of the orginal government debt, but are generally more attractive to investors because of the guarantees attached and the ability to trade the bond on international markets. Guarantees Guarantees attached to Brady bonds include collateral to guarantee the principal, rolling interest guarantees, and value recovery rights. Not all Brady bonds will necessary have all of these forms of guarantee and the specifics will vary from issuance to issuance. Types There are two main types of Brady bonds: par bonds and discount bonds. Other, less common, types include front-loaded interest-reduction bonds, new-money bonds, debt-conversion bonds, and past-due interest bonds.
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