A bond represents a loan to a borrower (the bond’s issuer) in return for regular interest payments.

Unlike a loan though, once issued (in the so-called primary market), a bond can be re-sold and traded among other investors in the secondary market.

As a retail investor, typically you’ll buy and sell a bond in the secondary market (i.e. after it has been issued) through a broker - this is true for both government and corporate bonds.

Here's a simple example of how bonds work: if you invest in a $10,000 ten-year bond with a 2% annual yield, what actually happens is you are lending $10,000 to the issuer (be it a government or a corporation) for ten years for $200 annual interest, assuming you hold the bond till maturity.

As bonds tend to have an active secondary market, you can sell your bond at any time before maturity at the prevailing market yield. Proceeds from the sale will of course include any accrued interest.

What else do you need to know about bonds?

Want to learn more before deciding what’s your optimal bond allocation? You might want to check out these other articles to deepen your knowledge.

 

 

Author of this article

Gergely Korpos

Author of this article

Gergely is the co-founder and CPO of BrokerChooser. His aim is to make personal investing crystal clear for everybody. Gergely has 10 years of experience in the financial markets. He concluded thousands of trades as a commodity trader and equity portfolio manager.

Gergely Korpos

Co-founder, CPO

Gergely is the co-founder and CPO of BrokerChooser. His aim is to make personal investing crystal clear for everybody. Gergely has 10 years of experience in the financial markets. He concluded thousands of trades as a commodity trader and equity portfolio manager.

Everything you find on BrokerChooser is based on reliable data and unbiased information. We combine our 10+ years finance experience with readers feedback. Read more about our methodology

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