What are bonds?
Bonds offer a fixed income investment. They are issued by corporations or governments to raise funds to finance projects and operations.
Taking out a bond is essentially lending money to the issuer of the bond. They pay you interest (called coupons) on a pre-determined schedule, typically quarterly or every six months. Some bonds pay a fixed rate of interest, others pay floating.
The bond is issued with a ‘face value’ (e.g. $100) and term to maturity (e.g. 10 years). The issuer promises to pay the face value to the bondholder at maturity. A bond’s market price can vary from its face value prior to the maturity date. This is because of variables such as changes in interest rates, the credit risk of the issuer, and the time to maturity.