Bond
What is Bond?
A loan an investor makes to a government or company in exchange for interest payments.
Understanding Bond
A bond is a debt security. The issuer borrows money from investors and promises to pay interest, called the coupon, on a set schedule and to repay the principal at maturity.
Bond prices move opposite to interest rates: when rates rise, existing bonds with lower coupons lose value.
Example
A 10-year Treasury note with a 4% coupon and $1,000 face value pays $40 a year and returns $1,000 at maturity.
FAQ
Can you lose money on a bond?
Yes. If you sell before maturity after rates rise, or if the issuer defaults, you can get back less than you paid.