A certificate of debt (promissory note) issued for a period of more than one year by entities such as corporations, municipalities, federal, state, and local government agencies. A bond is a loan to the issuer, bearing a stated interest rate, and maturing on a stated future date.
Bonds are debt-based investment instruments. When an investor buys a bond, the investor is lending money to the seller. The seller of the bond agrees to repay the principal amount of the loan at a specified time. A bondholder is, thus, a creditor of the issuer and not a partial owner, as is a stockholder.
Bonds may be issued by government agencies, corporations, or public-private sector partnerships.
Short-term bonds, issued for five years or less from the issuance date, are often called notes. Interest-bearing bonds pay interest periodically.
See also: Bond Categtories.