bond

Bonds are debt and are issued for a period of more than one year. The U.S. government, local governments, water districts, companies and many other types of institutions sell bonds. When an investor buys bonds, he or she is lending money. The seller of the bond agrees to repay the principal amount of the loan at a specified time. Interest-bearing bonds pay interest periodically.

A contractual obligation to fulfill a promise. See also Municipal Bond.

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A debt security that represents the obligation of the issuer to pay interest to the creditor or bond holder and return the principal at maturity. Bonds backed by collateral are termed secured while those that are not secured are called debentures. A sinking fund bond obligates the issuer to set aside some of its earnings to retire bonds periodically. A bond is usually identified by its maturity date and its coupon rate, which is the interest rate stated on the bond. The price of the bond is equal to its face value when issued, which is called the par price. After that, the price fluctuates in the market. Bonds selling above original price are selling at a premium to par while those selling below original price are selling at a discount to par. Prices vary inversely with interest rates, as the prices of old bonds must adjust so that their current yield will stay competitive with those of newly issued bonds. A bond does not represent ownership. See Baby Bond, Callable, Junk Bond, Municipal Bond, US Gov't Issues, Zero Coupon Bond, Convertible Bond, Corporate Bond.

An interest bearing security of indebtedness- i.e.- a promise to pay a certain sum of money by a future date- usually referred to as the maturity date- with interest payable thereon periodically at a specified rate- in registered form and regulated by state and federal securities laws.