What is a Bond?
Bond-Fixed Income-An agreement with legal force, in particular. Synonyms: promise, pledge, vow, oath, word (of honor); agreement, contract.
Finance: An official Document in which a government or company promises to pay back an amount of money that is borrowed and to pay interest for the borrowed money.
Synopsis of Bonds
- Bonds are like IOUs. Buying a bond means you are lending out your money.
- Bonds are also called fixed-income securities because the cash flow from them is fixed. Stocks are equity; bonds are debt.
- The key reason to purchase bonds is to diversify your portfolio.
- The issuers of bonds are governments and corporations.
- A bond is characterized by its face value, coupon rate, maturity and issuer.
- Yield is the rate of return you get on a bond.
- When price goes up, yield goes down, and vice versa.
- When interest rates rise, the price of bonds in the market fall, and vice versa.
- Bills, notes, and bonds are all fixed-income securities classified by maturity.
- Government bonds are the safest bonds, followed by municipal bonds, and then corporate bonds.
- Bonds are not risk free. It’s always possible-or the borrower to default on the debt payment.
- High-yield bonds are known as junk bonds.