Bonds Definition – What is Bonds? | CFI VU


Bonds are fixed-income instruments, and in basic terms, represent a loan made by an investor to a borrower who in most cases will either be a country’s government or a corporate entity. Bonds are utilized by governments and corporate entities to raise capital to finance operations or major projects. The owners of the bonds are classed as creditors of the issuer.


Bond information will always include the end date of the bond, when the sum borrowed (the principal) is scheduled to be repaid, and also the rate of interest that is paid on the bond.


Most government and corporate bonds can be publicly traded but some are only tradable between the issuer and the borrower of the bond, these are commonly known as over-the-counter bonds (OTC).


Bonds will be released for a standard price commonly £100 or £1000 which is known as the par price and on redemption of the bond, this is the value which the holder of the bond is entitled to receive from the issuer of the bond. During the lifetime of the bond, the holder (at the payment date) will receive the coupon rate of interest that is stated on the bond. For example, if the bond has a 5% coupon rate and a holder, owns one £1000 bond they will be entitled to receive £50 of interest on the coupon payment date.


Prices of bonds will fluctuate in the marketplace depending on various factors including the length of time until maturity of the bond, credit quality of the issuer, and the coupon rate applicable to the bond compared to other interest rates available at the current time.


Key takeaways:

  • Bonds are used by governments and corporate entities to raise capital for major projects or operations.
  • Bonds will always display the maturity date (when the principal loan must be repaid) along with the coupon rate (the amount of interest the bond pays) and the coupon date (the date or date at which the coupon rate is paid).
  • Bonds are classified as fixed income asset instruments as the most common types of bonds always pay a steady rate of interest. However, there are also variable interest bonds now available for investors.
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We would like to remind that while we endeavour to provide best possible services, Credit Financier Invest Limited provides execution only services and any information, reports, opinions, commentary or other materials he receives from CFI directly or from its employees or through any analytical tools provided to him or third party research provided to him from the Company shall not be deemed as investment advice and it cannot be relied upon to make investment decisions. The Client commits to make his own research and from external sources as well to make any investment. The Client accepts that CFI will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. The contents of any report provided should not be construed as an express or implied promise, as a guarantee or implication that clients will profit from the strategies herein, or as a guarantee that losses in connection therewith can, or will be limited.

Forex and CFDs are leveraged products that incur a high level of risk and a small adverse market movement may expose the client to lose the entire invested capital. The vast majority of retail client accounts lose money when trading in CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. The possibility exists that you could sustain a loss in excess of your deposited funds even if a stop loss is used and therefore, you should not speculate with capital that you cannot afford to lose and be aware of trading risks. Credit Financier Invest Limited provides general information that does not take into account your objectives, financial situation or needs. The content of this website must not be interpreted as personal advice. Please ensure that you understand the risks involved and seek independent advice if necessary.

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