What is Bond?
A bond is a fixed-income instrument representing a loan made by an investor to a borrower, typically a corporation or government, which pays periodic interest.
When you buy a bond, you are essentially lending money to the issuer—such as the U.S. Treasury, a state, or a company like Apple. In return, the issuer promises to pay you periodic interest payments (called coupons) and to return the principal amount (the face value) on a specified maturity date. Bonds are therefore often called fixed-income securities.
Government bonds, like U.S. Treasuries, are generally considered lower-risk investments. Corporate bonds typically offer higher interest rates (yields) to compensate investors for taking on the additional risk of the company's potential financial difficulties. Bond prices move inversely to interest rates; when rates rise, existing bond prices usually fall.