Capital Is Lent
Investors provide capital to a bond issuer when purchasing a bond through the relevant market or offering.
INVESTING • BONDS
Understanding Bonds and How Bond Investing Works
Learn how bonds work, how investors may earn returns, the different types of bonds available, and the risks and factors to consider before adding bonds to an investment portfolio.
Bond Basics
Types of Bonds
Risks & Returns
FIXED
INCOME
BONDS
Interest
Maturity
Issuer
Yield
BOND BASICS
What is a bond?
A bond is a type of debt investment in which an investor lends money to an issuer for a defined period. The issuer may be a government, municipality, company or another eligible organization. Depending on the bond's terms, the issuer generally agrees to make interest payments and return the principal at maturity.
Bonds are different from stocks because a bond represents a lending relationship rather than an ownership interest in a company. The terms of a bond can include its interest rate, maturity date, payment schedule, credit quality and other conditions.
Bond prices can also change before maturity. Interest rates, credit conditions, economic developments and market demand can influence the market value of an existing bond.
A debt investment
Investors lend capital to an issuer under defined terms for interest payments and repayment of principal.
HOW BONDS WORK
From lending capital to receiving payments.
Understanding the basic bond structure makes it easier to evaluate interest payments, maturity, price changes and potential returns.
Interest Is Paid
Depending on the bond's terms, the issuer may make periodic interest payments to bondholders.
Market Value Changes
A bond's market price can change because of interest rates, credit conditions, demand and broader market developments.
Maturity Arrives
If held until maturity and subject to the issuer meeting its obligations, the bond's principal is generally due according to its terms.
FIXED INCOME EXPLAINED
Bonds can provide a different role in a portfolio.
Bonds may be used by investors for income, diversification, capital preservation objectives or to balance exposure to other investments. Their role depends on the investor's objectives, timeframe and risk tolerance.
Interest income
Portfolio diversification
Different maturity choices
TYPES OF BONDS
Explore different types of bonds.
Bond investments can differ based on the issuer, purpose, maturity, credit quality and the risks associated with them.
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Government Bonds
Debt securities issued by governments to finance public spending, infrastructure and other government requirements.
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Corporate Bonds
Debt securities issued by companies to raise capital for business operations, expansion and other corporate purposes.
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Municipal Bonds
Bonds issued by states, cities and other public entities to finance infrastructure and public projects.
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International Bonds
Debt investments connected to issuers or markets outside the investor's domestic market.
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Inflation-Linked Bonds
Certain bonds are structured so that their principal or interest payments are linked in some way to inflation measures.
Learn about Inflation-Linked Bonds
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High-Yield Bonds
Bonds associated with issuers carrying lower credit ratings and therefore potentially higher credit risk and return expectations.
Learn about High-Yield Bonds
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BOND RETURNS
Understanding yield and returns.
Bond returns can come from more than one source. The relationship between the purchase price, interest payments, maturity value and market price can influence an investor's overall result.
Interest Payments
Many bonds make periodic interest payments based on their stated terms.
Price Changes
A bond's market price may rise or fall before maturity as market conditions change.
Maturity Value
A bond's terms generally specify the principal amount due at maturity, subject to the issuer meeting its obligations.
BOND INVESTMENT RISKS
Bonds can provide income, but they are not risk-free.
Understanding the major risks can help investors evaluate whether a particular bond fits their objectives and risk tolerance.
Interest Rate Risk
Existing bond prices can be affected by changes in market interest rates. Generally, bond prices and interest rates move in opposite directions.
Credit Risk
An issuer may experience financial difficulty and may not meet its payment obligations according to the bond's terms.
Inflation Risk
Inflation can reduce the purchasing power of future interest payments and principal received from a bond.
Liquidity Risk
Some bonds may be harder to sell quickly at a price close to their estimated market value.
EVALUATING A BOND
What investors should look at before buying.
A bond's stated interest rate is only one part of the investment decision. Investors should also consider the issuer, maturity, credit quality, price and overall portfolio role.
01
Issuer
Understand who is borrowing the money and evaluate the issuer's financial strength and ability to meet its obligations.
02
Maturity
Consider how long the investment is expected to remain outstanding and whether that timeframe fits your goals.
03
Credit Quality
Credit ratings and issuer information can provide insight into the level of credit risk associated with a bond.
04
Yield
Compare the expected return relative to the bond's price, interest payments, maturity and other relevant factors.
05
Liquidity
Consider how actively the bond trades and how easily it may be sold if your circumstances change.
06
Portfolio Role
Think about how the bond fits alongside stocks, ETFs, mutual funds and other investments you already hold.
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FREQUENTLY ASKED QUESTIONS
Common questions about bond investing.
A bond is a debt investment in which an investor lends money to an issuer for a defined period. The issuer generally agrees to make interest payments according to the bond's terms and repay principal at maturity, subject to its obligations.
Bond investors may receive periodic interest payments and may also experience a gain or loss if the bond's market price changes before it is sold or reaches maturity.
Yes. Bond investments can lose value. Interest rate movements, credit problems, inflation, liquidity conditions and other market factors can affect bond prices and investment outcomes.
Maturity is the date specified in a bond's terms when the principal amount is generally due, assuming the issuer meets its obligations.
Yield is a measure used to describe the return associated with a bond based on factors such as its price, interest payments and maturity. The exact calculation depends on the type of yield being considered.
Bonds and stocks have different risk characteristics, but bonds are not automatically safe. Bond risk depends on factors including the issuer, credit quality, maturity, interest rates and market conditions.
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