# A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
Bonds

At their most basic, bonds are loans.

When you buy a bond, you become a lender to an institution. Your loan lasts a certain period of time—until the date when the bond reaches maturity—and you get a certain dividend payment each month (commonly known as a coupon) as interest on the loan.

As long as the institution does not go bankrupt, it will also pay back the principal on the bond, but no more than the principal.

There are two basic types of bonds: government bonds and corporate bonds. U.S. government bonds (otherwise known as T-bills or Treasuries) are issued and guaranteed by Uncle Sam. They typically offer a modest return with low risk. Corporate bonds are issued by companies and carry a higher degree of risk (should the company default) as well as return.

Two forces govern the performance of bonds and bond funds: interest rate sensitivity and credit risk.

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