Bonds .

Borrowers issue bonds to raise money from investors willing to lend funds for a specific period. When you buy a bond, you are lending money to the issuing entity, which can be a government, a local authority, or a company. In return, the issuer agrees to pay a fixed interest rate over the life of the bond and repay the principal amount, also known as the face value, when it matures after a specified period.

Governments (at all levels) and companies typically use bonds to borrow money. Governments need to fund infrastructure projects like roads, schools, dams, and other public facilities. Companies issue bonds to expand their operations, acquire real estate and equipment, undertake profitable projects, conduct research and development, or hire employees. Bonds are called fixed-income instruments because they traditionally pay borrowers a fixed interest rate, also known as a coupon. However, variable interest rates are quite common these days.

Companies issue bonds instead of bank loans to fund their debts because bond markets offer more favorable terms and lower interest rates. Municipal bonds are issued by states and municipalities. Some municipal bonds provide tax-exempt income to investors. Government securities issued by the U.S. Department of the Treasury, for example, are called “Treasury bonds with maturities ranging from one year to 10 years.” Government bonds issued by national governments can be referred to as sovereign debt.

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