A baby bond is a fixed income instrument having a par value of less than $1,000 that is issued in small dollar denominations. The modest denominations make baby bonds more appealing to regular retail investors.

These small-denomination bonds are meant to attract regular investors who may not have a large enough investment portfolio to invest in traditional bonds.

Baby bonds are most commonly issued by municipal governments or as government-issued savings bonds.

Baby bonds are often classified as unsecured debt, which means that the issuer or borrower does not put up any collateral to guarantee interest and principal repayments in the case of default. As a result, if the issuer fails to meet its payment commitments, baby bondholders would be paid only after secured debt holders' claims were satisfied. However, according to the normal debt instrument structure, baby bonds are senior to a company's preferred shares and common stock.