Loans to governments and companies
Bonds
What is it?
A bond is a debt security. You lend money to an issuer and receive periodic interest plus your principal at maturity.
How does it work?
Bonds are bought in primary markets at issuance or in secondary markets on exchanges/OTC.
Benefits
- Predictable income
- Lower volatility than equities
- Diversification benefit
Risks
- Interest-rate risk
- Credit/default risk
- Inflation risk
Important terms
- Coupon
- Periodic interest paid by a bond.
- Maturity
- When the principal is returned.
- Yield
- Effective return based on current price.
Common mistakes
- • Chasing yield without checking rating
- • Ignoring rate cycles
Beginner tips
- • Start with G-Secs or high-rated corporate bonds
- • Ladder maturities
- • Match duration to horizon
Educational only. This page explains how bonds work. It is not a recommendation to buy, sell, or hold any specific asset.