Bond

Published Dec 23, 2022

Definition of Bond

A bond is a debt security issued by a government or corporation. That means it is a loan that the issuer takes out from investors, and in return, the issuer promises to pay back the loan with interest at a predetermined date. Bonds are typically issued in denominations of USD 1,000 or more and have a fixed maturity date, meaning they must be repaid by a certain date.

Example

To illustrate this, let’s look at an example of a bond issued by the US government. The US Treasury issues bonds in denominations of USD 100, USD 1,000, and USD 10,000. These bonds have a fixed maturity date of 10 years, meaning the US government must repay the loan with interest by the 10th year. The interest rate on these bonds is determined by the market and can vary from one bond to the next.

Why Bonds Matter

Bonds are an important part of the financial system. They provide a way for governments and corporations to raise money for various projects and investments. For investors, bonds provide a safe and reliable way to earn a return on their money. That’s because bonds are considered low-risk investments, since the issuer must repay the loan with interest regardless of the performance of the economy. In addition, bonds are also used as a hedge against inflation, since the interest rate on the bond is fixed and not affected by changes in the inflation rate.