This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
See Cramer's multi-million dollar portfolio for FREE and get his new book Get Rich Carefully! Learn More

Bond Definition

Dictionary of Financial Terms

In its simplest and most common form, a bond is a security that pays its holder a fixed sum on a regular schedule for a fixed term.

Bonds are debt securities. Bond investors are lenders; bond issuers are borrowers. To issue a bond is to borrow money from investors for a fixed term at a fixed interest rate. At the end of the term, the issuer returns the principal portion of the loan.

Principal is typically $1000 per bond, or some multiple thereof. This is also known as a bond's face value.

A typical bond pays interest on its face value, or principal, twice a year at a rate called its coupon. A $1000 bond with a 6% coupon pays $60 a year in two installments. This is why bonds are also called fixed-income securities.

A bond's coupon rate is a function of two things -- its term and its credit quality.

Longer-term bonds typically have higher coupons to compensate the investor for the risk that interest rates will rise before the bond matures. This is interest-rate risk. Most bonds mature in 30 years or less.

Credit quality refers to the issuer's ability and willingness to pay interest and repay principal on schedule. Most bonds carry ratings (triple-A is the highest) indicating their credit quality. Low-quality bonds carry large coupons to compensate investors for the risk that the issuer will default, or fail to make timely payments. This is credit risk.

There are three main classes of bond issuers: Treasury securities are issued by the federal government; municipal bonds are issued by states and local governments; and corporate bonds are issued by companies. Other types of bonds include high-yield bonds, agency securities, mortgage-backed securities and asset-backed securities. Except for municipal bonds, all the other types are collectively referred to as spread product.

Definitions of Financial Terms

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
DOW 16,510.81 +9.16 0.06%
S&P 500 1,878.14 +2.75 0.15%
NASDAQ 4,145.7260 +18.7590 0.45%

Brokerage Partners

Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs