Bonds are essentially a fancy term used to signify a debt security agreement between a lender and an issuing agency — usually a government or corporate entity.
When you purchase a bond, what you are really doing is loaning money to the person or group issuing the bond itself, which is physically manifested in the form of a coupon. The issuing party in turn then becomes obligated to pay interest on the bond, and to repay the dollar value in full once the coupon reaches maturity, or becomes due.
Bonds have become a particularly effective way over the years for governments to use as a supplemental revenue stream to finance various projects. Corporate institutions such as a bank are likewise eager to use debt securities like bonds to bankroll long term investments.
Not to be confused with CDs (certificates of deposit) or just plain cold hard cash — both of which are considered Money Market tools — bonds represent one of the smarter investments in the finance world, since they virtually guarantee a return. It’s hard to lose on an I.O.U. when it’s backed by the long arm of Uncle Sam.Powered by Sidelines