Bond
A debt instrument in which the issuer borrows money from the buyer and promises to pay periodic interest plus return the principal at maturity.
A bond is a fixed-income security representing a loan from the investor to the issuer — a government, municipality, or corporation. The issuer promises to pay coupon interest at set intervals and return the face value (principal) when the bond matures.
Bond prices move inversely with yields: when market interest rates rise, existing bonds paying lower coupons become less attractive, so their prices fall. When rates fall, existing bonds are more valuable.
For equity traders, the bond market is the gravity field that pulls on valuations — higher yields raise the discount rate used to price future cash flows, compressing equity multiples.
On the desk
You buy a 10-year Treasury bond with a $1,000 face value and a 4.5% coupon. Each year you receive $45 in interest. At maturity in 10 years, you receive $1,000 back regardless of what interest rates did in between.