What is a Bond?
A is a loan. When a company or government needs to raise money, it can borrow from investors by issuing . In return, it promises to pay the investor regular interest over a set period of time, and to return the original amount at the end.
How does a work?
Say a company issues a worth $1,000 with an interest rate of 4% per year over 5 years. You lend them $1,000. Each year they pay you $40. After 5 years they return your $1,000. That interest rate is called the , and the end date is called the .
Who issues ?
Governments issue to fund public spending like roads, hospitals, pensions. These are often called or . Companies issue to fund expansion or operations. These are called .
Are safer than ?
Generally, yes. offer predictable returns and bondholders are paid before if a company goes under. But they are not risk-free. If a company goes it may not repay you. And if interest rates rise, the value of existing tends to fall.
Why do investors use ?
provide stability and income. They tend to move differently from , which makes them useful for balancing a . Investors who are closer to retirement or who have lower often hold more to protect their wealth.