Fixed Income
Bond
A loan made by an investor to a borrower (often a government or corporation) that pays periodic interest and returns principal at maturity.
Example
A 10-year Treasury bond paying a 4.3% coupon on $10,000 pays roughly $430 a year in interest, then returns the $10,000 principal when it matures.
Common Misconception
Bond prices and interest rates move in opposite directions — when rates rise, the market value of existing lower-rate bonds falls, which surprises investors who assume bonds only go up in value.
Why It Matters
Bonds are typically the counterweight to stocks in a diversified portfolio, and the split between the two is one of the biggest levers over a portfolio's overall volatility.