A bond is a fixed-income debt instrument in which an investor lends money to a borrower, typically a government or corporation, for a defined period at a fixed or variable interest rate. In return, the bondholder receives periodic interest payments known as coupons and gets the principal (face value) returned at maturity. Bonds are considered lower-risk investments compared to equities and are a cornerstone of diversified portfolios. Bond prices move inversely to interest rates: when rates rise, bond prices fall, and vice versa.
Example
“He purchased a 10-year US Treasury bond yielding 4.5%, locking in a steady stream of semi-annual coupon payments.”