debenture

de·ben·ture   (dĭ-běn'chər)    n.   A certificate or voucher acknowledging a debt. An unsecured bond issued by a civil or governmental corporation or agency and backed only by the credit standing of the issuer. A customhouse certificate providing for the payment of a drawback. [Middle English debentur, from Latin dēbentur, they are due (probably the first word appearing on certificates of indebtedness), third person pl. passive of dēbēre, to owe; see ghabh- in Indo-European roots.]

debenture 

Debenture

An unsecured certificate of debt backed by the credit of the borrower, not by any physical assets. A T-bill is a type of debenture. Governments often issue debentures because they can't guarantee debt with assets - government assets are considered public property.

Investopedia Commentary

Debentures have no collateral. Lenders purchase debentures based on the creditworthiness of the debt issuer. Debentures are documented in an indenture.

The yields may vary depending on the credit rating of the issuer. Governments are generally considered to be a good credit risk because they have the ability to generate revenue to pay off debt by imposing higher taxes.

Related Links

What Is A Corporate Credit Rating?
Bond Basics Tutorial
When Companies Borrow Money

See also: Collateral, Convertible Debenture, Debt, Indenture, Note, Treasury Bill - T-bill, Unsecured Creditor

debenture

A corporate bond that is not secured by specific property. In the event that the issuer is liquidated, the holder of a debenture becomes a general creditor and therefore is less likely than the secured creditors to recover in full. Because of their high risk factor, debentures pay higher rates of interest than secured debt of the same issuer. See also subordinated debenture.

Main Entry: de·ben·ture
Pronunciation: di-'ben-ch&r
Function: noun
Etymology: Anglo-French debentour and Medieval Latin debentura, perhaps from Latin debentur they are owed
: an unsecured bond that is backed by the issuer's general credit rather than a specific lien called also debenture bond —see also INDENTURE —compare mortgage bond at BOND
NOTE: Debentures are often convertible to stocks.