A bond is a debt security, essentially an IOU (I owe you), issued by a borrower, typically a government, corporation, or other organization, to raise capital. It is a fixed- income instrument that represents a loan made by an investor to a borrower.
Bonds are commonly referred to as fixed-income securities and are one of the main asset classes that individual investors are usually familiar with, along with stocks (equities) and cash equivalents. Bonds are units of corporate debt issued by companies and secularized as traceable assets.
Bond prices are inversely correlated with interest rates: when rates go up, bond prices fall and vice- versa. Bonds have maturity dates at which point the principal amount must be paid back in full or risk default. Bonds are debt instruments and represent loans made to the issuer.
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Governments and corporations commonly use bonds in order to borrow money. They are generally considered safer investments than stocks but typically offer lower potential returns.
The specific terms of a bond can vary widely, making it important for investors to understand the details of any bond they are considering purchasing.
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