What is the difference between a senior bond and a subordinated bond?

The main difference between a senior bond and a subordinated bond lies in their priority of repayment in the event of a default or bankruptcy of the issuer.

A senior bond is a type of bond that has a higher priority of repayment compared to other types of debt issued by the same entity. In case of default, senior bondholders have a higher claim on the issuer's assets and are more likely to receive full or partial repayment before other creditors. This higher priority makes senior bonds less risky and typically results in lower interest rates compared to subordinated bonds.

On the other hand, a subordinated bond is a type of bond that has a lower priority of repayment compared to senior bonds. In case of default or bankruptcy, subordinated bondholders are only entitled to repayment after senior bondholders and other higher-ranking creditors have been fully satisfied. This lower priority makes subordinated bonds riskier and usually leads to higher interest rates to compensate for the increased risk.

In summary, the key difference between a senior bond and a subordinated bond is the priority of repayment in the event of default, with senior bonds having a higher priority and lower risk compared to subordinated bonds.