A bond is a tradable loan. The investor lends money to a government or company, receives interest payments over the life of the bond, and gets the principal back at maturity. Unlike a shareholder, a bondholder owns no part of the business — but is paid before shareholders if things go wrong.
Key takeaways
- Bond prices fall when market interest rates rise, and rise when they fall.
- The main risk is that the issuer cannot pay — credit risk.
- Bonds sit above shares in the queue for repayment.
