What is a bond?
Money you lend, with a promised date attached.
To buy a bond is to lend money to a government or a company. A promised stream of interest, and the principal returned on a promised day. That promise is not always kept.
In 30 seconds
- Buying a bond means lending money to a government, a local authority or a company.
- The issuer promises to pay interest at a set rate and to repay the principal on the maturity date.
- Bonds outstanding worldwide came to $160.7 trillion in 2025. There is a risk the issuer cannot pay, and a risk the price moves if you sell before maturity.
A bond is a certificate of money lent.
To buy a bond is to lend money to its issuer.
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Lending
The SEC’s investor site explains that when you buy a bond, you are lending to the issuer, which may be a government, a municipality or a corporation.[1]
Interest, and a promised date.
The issuer promises to pay interest and to repay the principal on the maturity date.
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Two promises
The issuer promises to pay a specified rate of interest during the life of the bond and to repay the principal, or face value, when it “matures” after a set period.[1]
The world’s mountain of IOUs.
Bonds outstanding worldwide come to $160.7 trillion.
Global bonds (fixed-income securities) outstanding, 2025
Compiled by the US securities industry association (SIFMA).
When the promise wavers.
There is a risk the issuer cannot pay, and a risk the price moves with interest rates.
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The risk of not being paid
The issuer may fail to make interest or principal payments on time. This is called credit risk.[1]
A price that moves with rates
When interest rates change, so does a bond’s value. Held to maturity, you receive the face value plus interest; sold before maturity, a bond may be worth more or less than you paid.[1]
A scale for reading bonds.
A scale for reading bonds.
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The issuer
Who you are lending to: a government, a local authority or a company.[1]
Maturity and rate
When the money is promised back, and at what rate.[1]
Two risks
The risk of not being paid, and the risk that rates move the price.[1]
This is not advice
This edition explains how bonds work. It does not recommend or compare any bond or issuer.
Next question
NEXT QUESTIONA small owner of the company.NEXT QUESTIONInterest brings more interest with it.See the Field Notes shelf →What this edition cannot tell you
- The size of each country’s bond market.
- A detailed explanation of how credit ratings work.