Bond

What is Bond? — Definition

When you buy a bond, you're essentially lending money. The borrower (issuer) promises to pay you a fixed interest rate (the coupon) at regular intervals and return your principal at maturity. Bonds are rated by agencies like Moody's and S&P — AAA-rated bonds are the safest, while 'junk' bonds (below BBB-) carry higher risk and higher yields.

Bond prices move inversely to interest rates: when rates rise, existing bond prices fall, and vice versa. This is critical to understand. A 10-year Treasury bond paying 3% becomes less attractive when new bonds offer 5%, so its price drops on the secondary market.

Example

If you buy a $1,000 corporate bond with a 5% annual coupon and a 10-year maturity, you receive $50 per year for 10 years and then get your $1,000 back — assuming the company doesn't default. Total income: $500 in interest plus principal.

Bonds are typically less volatile than stocks, making them useful for balancing risk in your Portfolio Tracker on BMInsider, especially during periods when the Fear & Greed Index shows extreme market sentiment.