What is a bond?

Learn what a bond is

When governments and companies want to raise money, they’ll often do so by issuing bonds.

Bonds are effectively promissory notes. In return for buying bonds, investors will receive the money they put in back, plus interest.
Investors usually buy bonds because they promise a fixed return, in the form of interest, that is supposed to be paid back at one or several preset dates.

As the interest rate paid on bonds is usually fixed and pre-set, it’s common for bonds to be referred to as ‘fixed-income’ investments. Today, not all bonds have a fixed interest rate. Many are now issued with variable or floating interest rates, which change over time.

Deep dive: What are bonds and why investors buy them?

More terms

Clean price

The quoted price of a gilt, which excludes accrued interest
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Value stocks

Stocks in companies that aren’t necessarily growing fast, but instead are dependable and stable.
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Hedge Fund

Investment funds that are often associated with riskier and shorter-term trading strategies.
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Retail Prices Index (RPI)

An index published each month by the Office for National Statistics, which measures the level of retail prices in the UK. Cash flows on all index-linked gilts are linked to the RPI.
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Wall Street

A street in New York that became a figure of speech for the financial markets of the US.
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Gilt

What is a gilt?
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Total Return

This is the measurement of a fund’s performance in a specific period.
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Equity

The amount of money a company would be left with by subtracting its liabilities from the value of its assets.
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Unicorn

A startup valued at over £1 billion. They are rare, hence the name.
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