A bond is a fixed-income investment representing a loan from an investor to a borrower such as a government or corporation.
When a bond is issued, the borrower promises to make specified interest payments, often called coupon payments, and to repay the principal at maturity. The issuer’s creditworthiness, the bond’s maturity, and prevailing interest rates all influence its price and yield.
Bonds are not the same as shares of stock. Stock represents an ownership interest, while a bond represents a creditor claim. Bondholders generally rank ahead of common shareholders if an issuer is liquidated, although repayment is not guaranteed. A common mistake is assuming every bond has a fixed market price: after issuance, its market price can rise or fall, especially when interest rates change.