Bond

A bond is an IOU issued when a government or company borrows money. Buying one means lending to them: you collect interest for a set period and get the principal back at maturity. Unlike a stock, you are a lender, not an owner.

That means you do not share the upside when the business thrives, but you still receive the promised interest and principal when it struggles. In a liquidation, bondholders are paid before shareholders. Limited return, higher safety.

Bond prices move opposite to interest rates. When rates rise, newly issued bonds pay more, making existing ones less attractive, so their price falls. The longer the maturity, the stronger this effect, which is why long bonds swing far more.

Not all bonds are equally safe. Government bonds sit at the top, while high-yield bonds from lower-rated companies pay more precisely because they might not pay at all. An unusually generous coupon is a risk warning, not a bargain.