Bond

A bond is essentially a loan that an investor makes to a borrower, usually a corporation or government entity. In return, the borrower promises to pay a specified rate of interest during the life of the bond and to repay the face value when it matures.

Bonds are rated by agencies like Moody's and S&P based on the issuer's creditworthiness. Investment-grade bonds (rated BBB or higher) carry lower risk and lower yields, while high-yield or junk bonds offer higher returns but greater default risk. Government bonds, especially U.S. Treasuries, are considered among the safest investments.

Bond prices move inversely to interest rates. When rates rise, existing bond prices fall, and vice versa. This relationship is important for investors who may need to sell bonds before maturity. Bonds play a crucial role in portfolio diversification and income generation.