Outstanding bonds are ones that have been purchased by an investor but have not yet been repaid by the issuing business. Unpaid portions of bonds are deemed outstanding until they have been repaid in full, plus interest.
When a person purchases a bond, she essentially lends money to a corporation for a period of time, typically months or years. The purchaser or investor of the bond will receive interest payments. If the corporation returns the principal and interest to the investor, the bonds are deemed paid.
When interest rates increase, the price of outstanding bonds often decreases, bringing the yield of older bonds in line with the higher interest rate of newly-issued bonds. In addition, as the interest rate lowers, the price of the outstanding bond must increase such that the yield of the older bond corresponds to the lower interest rate of the newly-issued bond.
This volatility can be observed in outstanding bonds as well as bond markets. For instance, if an investor has a 10-year-old bond with a 4% yield and desires to exchange it for a new bond with a 7% yield, she must sell the older bond at a discount.
