What is a bond?

A bond is a debt security that represents a loan made by an investor to a borrower (typically a corporation or government). The borrower is required to pay back the loan, plus interest, at a future date.

Bonds are issued in a variety of forms, including corporate bonds, municipal bonds, and government bonds. Corporate bonds are issued by companies to raise capital, while municipal bonds are issued by local governments to finance infrastructure projects, and government bonds are issued by national governments to finance their operations.

When an investor buys a bond, they are essentially lending money to the borrower in exchange for regular interest payments and the return of principal at the end of the bond's term. The terms of a bond, including the interest rate, the maturity date, and the creditworthiness of the borrower, are specified in the bond's indenture (a legal document that outlines the terms of the bond).

Bonds are considered to be a safer investment than stocks, as they offer a fixed return and are backed by the borrower's assets or creditworthiness. However, they also typically offer lower potential returns than stocks, as the borrower is obligated to pay back the loan regardless of their financial performance.