bond
bond
/bɒnd/
A debt instrument issued by governments or corporations to raise capital, promising to pay interest over a specified period and to repay the principal at maturity.
Bonds are essentially loans. When you buy a bond, you are lending money to the issuer. They are generally considered less risky than stocks but offer lower potential returns.
The story behind the word. The word 'bond' comes from the Old English 'bindan,' meaning 'to bind.' It originally referred to anything that binds, ties, or holds together, like a rope or a chain. In a financial context, it evolved to mean a formal agreement or obligation, specifically a written promise to pay a sum of money, thus 'binding' the issuer to their debt.
Word relationships
- debenture: A type of unsecured bond, not backed by collateral.
- note: Often refers to a shorter-term debt instrument than a bond.
- equity: Represents ownership, not debt.
Commonly confused with
- stock: A 'bond' is a loan (debt); a 'stock' (equity) is an ownership share.
Word family
- bondholder (noun): A person or institution that owns bonds.
- bonding (noun): The process of forming a close relationship (unrelated financial meaning).
Collocations
- government bond
- corporate bond
- municipal bond
- junk bond
- treasury bond
- bond market
- issue a bond
Idioms & expressions
- bond of friendship
Example sentences
- "She decided to invest a portion of her savings in a corporate bond offering a fixed interest rate." Government bonds are often seen as a safe haven during economic uncertainty.
- "Investors holding the bond received regular interest payments, known as coupon payments, until its maturity date." The municipality issued new bonds to finance the construction of a public library.
Memory hook
A 'BOND' is like a financial 'bond'age, tying the issuer to pay you back. BOND: binds issuer to pay.
When not to use
Do not use 'bond' when referring to an ownership stake in a company (use 'equity' or 'stock').
Fun facts
- The term 'junk bond' refers to high-yield, high-risk bonds issued by companies with lower credit ratings.
- The oldest known bond market dates back to ancient Mesopotamia, where temple priests issued loans with interest.
Related words
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