Definition of bond

Essentially, a tradable IOU. Governments, companies and other organisations issue bonds to raise money; in doing so, they have an obligation to repay the bondholder according to specific terms. Once issued, bonds - including the right to receive the issuer's repayments - can be traded on established markets. In most cases, a bond is redeemable at face value on a particular date, and has a fixed rate of interest that is paid at regular intervals through to maturity (see straight bond). The coupon rate is the interest rate attached to the bond, while the yield is the coupon rate divided by the price at which the bond was purchased. There are several different types of bond, including zero-coupon bonds (normally sold at a discount to make up for the lack of interest payments) and convertible bonds (convertible into shares). Also see bearer bond; fixed income; junk bond; registered bonds; secured bond; unsecured bonds.