ETFs & Funds · Investing Glossary
What Is Bond?
A loan made to a company or government that pays interest over a set period.
The Full Definition
A bond is a debt instrument — when you buy a bond, you're lending money to the issuer (a corporation, a municipality, or the US government) in exchange for regular interest payments and the return of your principal at maturity. Bonds are generally less volatile than stocks and provide income, making them a key component of balanced portfolios. The relationship between bond prices and interest rates is inverse: when rates rise, existing bond prices fall, and vice versa.
Real-World Example
A 10-year US Treasury bond paying 4.5% means the US government borrows your money for 10 years and pays you 4.5% annually. If you paid $1,000, you receive $45/year and get your $1,000 back in 10 years — unless you sell it beforehand at market price.
Related Terms
- Bond YieldThe return an investor earns on a bond, expressed as a percentage of its price.
- Bond DurationA measure of how much a bond or bond fund's price will move for every 1% change in interest rates.
- TreasuryA debt security issued by the US government to fund its operations.
- Asset AllocationHow you divide your portfolio across stocks, bonds, cash, and other assets.