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** How do bonds work? **

by Jane McGrath

· Page
· 1

How do bonds work?

· 2

Types of Bonds

· 3

Bond Terminology

· 4

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­Investing Image Gallery
­Investing Image Gallery

*­Investing Image Gallery* Bonds, which can be issued by corporations or
even governments to raise funds, are a kind of investment for the buyer.
See our investing pictures.

iStockphoto/Richard Cano

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­Witho­ut loans, most of us wouldn't be able to afford things like a car,
a home or education. And, just as people borrow money to help them succeed,
so do businesses. Businesses often need loans to fund operations, move into
new markets, innovate and grow in general. But the amount they need often
surpasses what a bank can provide. So another useful way for corporations
to raise the necessary funds is to issue *bonds* to whoever wants to buy

But that's all a bond is -- a loan. When you buy a bond, you're lending
money to the organization that issues it. The company, in return, promises
to pay interest payments


how do bonds work

How Does the Bond Market Work?


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** How Does the Bond Market Work? **

From Marc Pearlman

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· bonds
· municipal bonds
· junk bonds
· fixed income investments

The U.S Stock Market seems to garner most of the attention when it comes to
grabbing headlines, but what about the bond market?  The bond market is an
integral component of the U.S financial system.  Here is a quick overview
of how the system works.

*What Is a Bond?*

A bond in its simplest form is an IOU.  An issuer of a bond promises to
pay the buyer their principal back at a predetermined time and pays a
specific amount of interest at predetermined dates.

*Who Issues Bonds?*

Technically, just about anyone could issue a bond.  However, the
overwhelming majority of bonds are issued by corporations and governments.

*Why Issue Bonds?*

Just about everyone could use capital and the government and corporations
are no exception.  Companies raise capital in two ways.  One is by
issuing stock and the other is by selling bonds.  When companies issue
bonds, the buyer of those bonds becomes a creditor of the company.  When a
company issues stock, the buyers of the stock become owners of the company.

*What Is the Bond Market?*

The term “Bond Market” is really a very general term.  In reality,
there are many different bond markets and these markets are a bit less
organized and structured than major stock markets.

A market is basically a place where


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