What Is Bond?

A bond is a debt security in which the issuer owes the holders a debt and is obliged to pay them interest (coupons) or to repay the principal at a later date, termed the maturity date. Bonds are used by companies, municipalities, states and sovereigns to finance infrastructure, operations, and projects. Holders of bonds are debtholders, or creditors, of the issuer.

The most common types of bonds include government bonds, corporate bonds, and municipal bonds.

Government bonds: Government bonds are debt securities issued by national governments. The primary purpose of government bonds is to finance government spending and debt. The best-known types of government bonds include Treasury bills, Treasury notes, and Treasury bonds.

Corporate bonds: Corporate bonds are debt securities issued by companies to finance expansion, acquisitions, or other business activities. Corporate bonds typically have a term of one to five years. The best-known type of corporate bond is the investment-grade bond.

Municipal bonds: Municipal bonds are debt securities issued by municipalities to finance public projects such as roads, schools, and bridges. Municipal bonds typically have a term of 10 to 30 years. The best-known type of municipal bond is the general obligation bond.

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