Bonds are one of the most important financial instruments in the world. They’re used by governments, corporations, and individuals to raise money, and they play a vital role in the global economy.
Bonds are essentially loans. When you buy a bond, you’re lending money to the issuer. In return, the issuer agrees to pay you interest, and to repay the principal amount of the loan when the bond matures.
Interest rates are a key factor in determining the price of a bond. If interest rates rise, the price of a bond will fall, and vice versa. This is because when interest rates rise, new bonds are issued at a higher rate, making existing bonds less attractive.
Bond prices are also affected by the creditworthiness of the issuer. A bond issued by a company with a good credit rating will be more expensive than a bond issued by a company with a poor credit rating, because there’s a greater chance of the company defaulting on its debt.
Bonds are a complex and fascinating topic, and there’s a lot more to them than we can cover in this brief article. If you’re interested in learning more about bonds, we recommend speaking to a financial advisor.