Definition of War Bond

Financial Terms Beginning with W

What is a War Bond

A war bond is a debt security issued by a government to finance military operations and spending during periods of war or military action. The rate of return is generally lower than the current market rate but the bond is sold on nationalistic emotion, not return.

History of US War Bonds

War bonds in the United States were initially known as defense bonds. The first defense bonds, Liberty Bonds, were issued in 1917 to finance the US government’s involvement in World War I. Liberty bonds raised more than $21.5 billion US dollars, which was spent on the financing of World War I.

Following the attack on Pearl Harbor on December 7, 1941, defense bonds were renamed war bonds. These bonds were highly supported with more than 80 million Americans making war bond purchases, raising more than $180 billion US dollars to finance World War II.

After World War II, war bonds became known as Series E bonds, which lasted until 1980 when Series E bonds were replaced by Series EE bonds. After the terrorist attacks in the United States on September 11, 2001, Series EE bonds became known as Patriot bonds.

Discounted to Par and Small Denominations

There are two common and interesting features about war bonds. They can be looked at as zero-coupon bonds because the bonds are bought at a discount to their par value or face value with the face value being paid at maturity.

War bonds are also considered baby bonds, which means they have smaller par values than standard bonds. The smaller bond denominations make it easier for all Americans to make purchases of war bonds.

Glossary of Terms and Phrases

A financial dictionary or glossary is an essential tool to better understand the meaning of a specialized term or phrase. It would obviously make life much easier if everyone spoke the same language and used the same financial terms and phrases but that is not realistic.

We learn new languages to communicate with each other, transact business globally and to appreciate other cultures. Global finance is a specialized language that if understood and mastered, it will provide benefits that help to decrease risk and improve investment returns. Financial literacy is the foundation of developing good investment strategies and sound decision making.

Related Investment Terms

Baby Bond

Par Value

Zero-Coupon Bond

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