A guide to corporate bonds

A bond is effectively a loan made by one party (an investor) to another (such as a government, company or other institution) to meet the financing requirements of the latter. In addition to repaying the capital (the 'principal') of the loan at the end of the bond's life ('maturity'), the bond issuer agrees also to pay the lender a certain rate of interest in the form of 'coupons' at specified intervals (usually annually or semi­annually) over the life of the bond. Unless the issuer defaults (fails to repay interest or principal when due), bond investors receive a known set of future cash flows; if investors hold a bond to maturity, they will receive regular coupons and the return of their capital. Between issuance and maturity, bonds are traded between investors on secondary markets.