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

Alpha

The percentage by which an investor outperforms a relevant benchmark.
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Running yield

The annual interest payment (dividend) divided by the current market price of a bond.
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Profit and Loss Statement (P&L)

A statement that summarises firm's expenses, costs, and revenues incurred during a time period. AKA income statement.
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Fundamentals

The data or information that is likely to impact a company's stock price.
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Internal Rate of Return (IRR)

A means of calculating the potential future return on an investment.
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DMO

The United Kingdom Debt Management Office. It’s an executive agency responsible for managing the government’s debt and cash needs, primarily through issuing gilts and Treasury bills.
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Securities

Bonds and stocks.
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Maturity value

What's the maturity value of a bond?
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Inflation

The increase in the prices of goods and services over time, and the process by which money loses its value.
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