Bonds are debt instruments issued by governments, municipalities, or corporations to raise capital. When investors purchase bonds, they are essentially lending money to the issuer in exchange for periodic interest payments, known as coupon payments, and the return of the principal amount at maturity.

There are various types of bonds, including government bonds, municipal bonds, corporate bonds, and international bonds, each with different risk profiles and yields. Government bonds, such as U.S. Treasury bonds, are generally considered the safest because they are backed by the full faith and credit of the government. Municipal bonds are issued by state or local governments and typically offer tax advantages. Corporate bonds are issued by companies to fund operations or expansions, offering higher yields but also higher risk depending on the issuer’s creditworthiness.

Bonds are characterized by their face value, coupon rate (interest rate), maturity date, and credit quality. They are traded in the bond market, where prices fluctuate based on changes in interest rates, issuer credit ratings, and market demand. Bonds provide investors with a predictable income stream from interest payments and are often seen as a conservative investment choice compared to stocks.

Investors may hold bonds until maturity to receive the full principal amount or trade them in the secondary market before maturity. Bond prices and yields have an inverse relationship—if interest rates rise, bond prices generally fall, and vice versa.

Overall, bonds play a crucial role in the global financial system, providing issuers with capital and investors with income and diversification opportunities.