What is a characteristic of debenture bonds?

Debenture bonds are characterized by being unsecured debt instruments that are not backed by physical assets or collateral. Instead, they rely solely on the creditworthiness and reputation of the issuing company to provide assurance to investors. This means that if the issuer defaults on its obligations, debenture bondholders may not have any specific claims against assets of the company.

This aspect makes debentures more risky compared to secured bonds, which are tied to specific assets that could be liquidated in the event of default. The reputation and credit rating of a company are crucial for debentures, as investors assess the likelihood that the issuer will meet its interest and principal repayment obligations based on its financial strength and stability.

Other options present characteristics of different types of bonds. Some bonds are indeed backed by physical assets (which would make them secured), and while many bonds may offer predictable interest payments, debenture bonds do not guarantee such payments if the issuer encounters financial difficulties. Lastly, government guarantees apply to certain types of bonds, but not specifically to debenture bonds, which are distinct in their non-collateral nature.