8 Types of Controversial Debt Securities

8 Types of Controversial Debt Securities8 Types of Controversial Debt SecuritiesA debt security is a financial instrument thats issued by a company or institution and sold to an investor with an agreement to pay back the face value and interest until it reaches an agreed upon maturity date or renewal date. Common types of debt securities include government bonds, corporate bonds, and municipal bonds.Traditionally, investors have bought debt securities because of the lower risk associated with them. However, in more recent years, a newer class of riskier,more controversial debt securities have come about. These include catastrophe bonds, collateralized debt obligations, collateralized loan obligations, mortgage-backed securities, collateralized mortgage obligations, covered bonds, death bonds,and junk bonds.Many finance experts point to these types of debt securities as some of the main contributors to the 2008 financial crisis.Unlike more traditional debt securities, individual inves tors do not usually buy these more controversial types of debt securities.Institutional investors, such as hedge funds and pension funds, are usually the main purchasers. 01Junk Bonds Junk Bonds are similar to regular bonds, except that the issuer has a low credit rating. Because ofthis, they have the qualifikation to pay higher yields than regular bonds to investors, but they also come with higher risks.