1. Bond Basics: Introduction
  2. Bond Basics: What Are Bonds?
  3. Bond Basics: Characteristics
  4. Bond Basics: Bond Prices and Yield to Maturity
  5. Bond Basics: Different Types Of Bonds
  6. Bond Basics: How To Read A Bond Table
  7. Bond Basics: How to Trade Bonds
  8. Bond Basics: Conclusion

Long before there were corporations that issued shares of stock for investment, there was the systematic use of debt to raise money. Debt involves borrowing money with the promise to pay it back in full, along with interest over time. The guaranty assuring that promise is known as a bond. In other words, bonds represent debt obligations.

Bonds have been around for millennia. The ancient Mesopotomia city of Ur in what is today Iraq had a bond market around 2400 B.C., guaranteeing repayment for borrowed grain. Kings, and later democratic governments often borrowed by issuing bonds to fund wars and territorial expansion. In modern times, governments still borrow to undertake projects, but there is also a thriving market for bonds issued by corporations, who borrow for expanding profitable undertakings. For example, a company may borrow in order to acquire a competitor, to build a new factory, or to hire personnel.

Pacific Railroad Bond issued by the City and County of San Francisco in 1863

Bonds are fundamentally different from stocks in a number of ways. Shares of stock represent claims on profits and confer voting rights to shareholders and the price of stocks thus vary with expectations of future profitability for the firm. Bonds, on the other hand, represent debt repayment obligations and are priced based on factors such as the likelihood of being repaid.

In the modern economy, most diversified investment portfolios contain some allocation each to stocks and bonds, where bonds are often considered the more conservative choice of the two. For a number of reasons that will be discussed in this tutorial, bonds do offer some safeguards that shares of stock lack.

This tutorial will hopefully help you understand bonds, and to determine whether or not bonds are right for you. We'll introduce you to the fundamentals of what bonds are, the different types of bonds and their important characteristics, how they behave, how to purchase them, and more.


Bond Basics: What Are Bonds?
Related Articles
  1. Investing

    Corporate Bond Basics: Learn to Invest

    Understand the basics of corporate bonds to increase your chances of positive returns.
  2. Investing

    The Best Bet for Retirement Income: Bonds or Bond Funds?

    Retirees seeking income from their investments typically look into bonds. Here's a look at the types of bonds, bond funds and their pros and cons.
  3. Investing

    Investing in Bonds: 5 Mistakes to Avoid in Today's Market

    Investors need to understand the five mistakes involving interest rate risk, credit risk, complex bonds, markups and inflation to avoid in the bond market.
  4. Investing

    An Introduction to Individual Bonds

    Individual bonds are better than bond funds and can be a key component to one’s investment strategy.
  5. Retirement

    Should I Invest in Bonds After I Retire?

    Yes, retirees should invest in bonds, but remember that not all bonds are safe investments. Seek the help of a financial advisor.
  6. Investing

    Top 6 Uses For Bonds

    We break down the stodgy stereotype to see what these investments can do for you.
Frequently Asked Questions
  1. Do Shareholders Get a Say in a Firm's Operation?

    Stock ownership often provides a vote on board membership and other issues put out for shareholder approval.
  2. What Was the First Company to Issue Stock?

    The Dutch East India Co. was the first company to sell shares of the business to the public in 1602.
  3. Who Benefits From Loaning Shares in a Short Sale?

    Does loaning shares in a short sale transaction derive any benefit other than interest on the loan?
  4. What is the difference between a lien and an encumbrance?

    Understand the legal terms ''lien'' and ''encumbrance,'' and learn the significant distinction between these two essential ...
Trading Center