Definition
Bond is a debt security issued by a government, corporation, or other entity to raise funds. The issuer agrees to pay the bondholder interest—usually at a fixed or variable rate—over a specific period and to repay the principal amount at maturity.
Why It Matters
Bonds are fundamental to financial markets as they provide governments and businesses with capital for projects and operations. They also offer investors predictable income and diversification. Bond prices and yields influence interest rates, investment strategies, and overall economic activity.
Example
If a corporation issues a $10,000 bond with a 5% annual interest rate for 10 years, the investor receives $500 in interest each year and the original $10,000 principal at the end of the 10-year term. Governments issue bonds similarly to finance infrastructure or manage deficits.