Glossary
Bond
A bond is an interest-bearing security through which a debtor, such as a government or a company, raises debt capital. Whoever buys a bond grants the debtor a loan and becomes its creditor. Over the term, the holder generally receives periodic interest payments, and the nominal value is repaid at maturity. Its value depends on the debtor's creditworthiness and on the level of interest rates.
At a glance
- A bond represents a loan; the holder is a creditor, not a co-owner.
- The holder generally receives periodic interest and the nominal value back at maturity.
- The main risks are the debtor's default risk and the risk of changing interest rates.
Frequently asked questions
When market interest rates rise, the price of existing bonds with lower coupons generally falls, because newly issued securities offer more attractive interest. Whoever holds a bond until maturity receives the nominal value back, provided the debtor remains solvent. The market price mainly matters for an early sale.
No. Bonds also carry risks, in particular default risk if the debtor becomes insolvent. The debtor's creditworthiness is often assessed through ratings, but this is not a guarantee of repayment.
Part of the topic
Saving & Investing
This entry is for general information purposes only and does not constitute investment, legal or tax advice. It is a simplified summary of the legal position and tax treatment.