What does Bond mean?

A bond is a debt that is issued for a period of more than 12 months. Te United States, along with local governments, companies, water districts and other types of institutions issue bonds.

If a bond was purchased then that means the buyer has lent money. The bond seller in return promises to pay back the principal amount of the loan until a specified time. There are many types of bonds, among them the interest bearing bond which pays interest periodically.

A bond is basically a debt investment, where an investor loans money to an institution, either corporate or governmental, who in turn borrows these funds for a predefined time period at a fixed interest rate. The purpose of this is to finance a wide variety of activities and projects.

Bonds are otherwise known as fixed income securities and are one of the three major asset classes, besides cash equivalents and stocks.

The entity that borrows the money issues a bond stating the interest rate, known as a coupon, which will be paid, along with the amount lent to the institution, also called the bond principal as well as the due date the money, is to be repaid, which is known as the maturity date.

The interest on any particular bond is paid semi-annually, as in every 6 months. There are many types of bonds issued: municipal bonds, corporate bonds, and United States Treasury bonds, which are made up of notes and bills, but are collectively called “Treasuries”.

Duration and credit quality are the two features of a bond that are the main determinants of any bond’s interest rate. The maturity date on a bond can range from ninety days, the usual date for a Treasury bill, all the way up to thirty years, when it comes to governments bonds. Corporate bonds and municipal bonds generally mature anywhere between three and ten years.