What Is a Bond?

by Mike Moffatt
Mike Moffatt specialties include optimal pricing, taxation, and free-market policy. He has taught economics at the university and community college levels.
Updated March 17, 2017

A bond is a fixed interest financial asset issued by governments, companies, banks, public utilities and other large entities. When a party buys a bond, it is basically lending funds to the issuer of the bond.  Bonds pay the bearer a fixed periodic amount (called a coupon payment) and has a specified end date (known as the maturity date). For this reason, bonds are sometimes referred to as fixed-income securities.

 A discount bond (also known as a zero-coupon bond) pays the bearer only at the ending date, while a coupon bond pays the bearer a fixed amount over a specified interval (month, year, etc.) as well as paying a fixed amount at the end date.

A bond issued by a company is different from a share of stock in a company fr two reasons.  First, owning a bond does not confer an ownership share in the underlying company.  Second, payments are explicitly defined as opposed to taking the form of dividends issued at the discretion of company management.

Terms related to Bonds:

  • Bond Ratings
  • Discount Bond
  • Coupon Bonds

About.Com Resources on Bonds:

  • Economics - The Dividend Tax Cut and Bonds
  • Stocks - Bonds Ahead of Stocks
  • Financial Planning - Are Savings Bonds Good Investments?
  • Investing for Beginners - Junk Bonds - A Quick Lesson
  • Investing for Beginners - What are bonds?

Writing a Term Paper? Here are a few starting points for research on Bonds:

Books on Bonds:

  • Bond market rules : 50 investing axioms to master bonds for income or trading - Michael D Sheimo, McGraw-Hill, 2000.
  • Savings bonds : when to hold, when to fold and everything in-between - Daniel J Pederson, Sage Creek Press, 1999. (4th edition)
  • The small investor : a beginner's guide to stocks, bonds and mutual funds - Jim Gard, Ten Speed Press, 1996.
  • Junk bonds : how high yield securities restructured corporate America - Glenn Yago, Oxford University Press, 1991.
  • Municipal bonds : the comprehensive review of tax-exempt securities and public finance - Robert Lamb; Stephen P Rappaport, McGraw-Hill, 1980.

Journal Articles on Bonds: