Investing · General financial education

Bonds as loans

With a bond you lend money to a government or a company. In return a coupon and, usually, repayment at a date are promised, if the issuer pays.

In more detail

When market rates rise, existing bonds with a lower coupon typically fall in price if you sell before the end. When rates fall, existing prices often rise. Until scheduled repayment the price can move; the promise is not instant-access cash.

Background

Remaining term and coupon affect how strongly price reacts to rate moves. That is the idea of duration, not a figure to memorise. Credit risk (does the issuer pay?) and interest-rate risk are different. A bond fund mixes both and has no single maturity like one bond.

An example

You hold a bond with a 2% coupon. New comparable bonds offer 4%. A buyer of your older bond typically demands a discount on the price. That is a mechanism, not a price guarantee.

A common misconception

A bond = a fixed price like a savings book.

The coupon can be fixed. The sale price typically moves against market rates. The issuer can default.

Source: Investor.gov · Bonds. Last reviewed: 2026-10-31. Editorially reviewed on 2026-10-31. Next review 2027-10-31. Version 0.2.0. Finmon explains. It does not advise. Not investment, tax or legal advice.