Economics A-Z | Economist.com

Economics A-Z | Economist.com: "Bonds 'Gentlemen prefer bonds,' punned Andrew Mellon, an American tycoon. A bond is an interest-bearing security issued by governments, companies and some other organisations. Bonds are an alternative way for the issuer to raise capital to selling shares or taking out a bank loan. Like shares in listed companies, once they have been issued bonds may be traded on the open market. A bond's yield is the interest rate (or coupon) paid on the bond divided by the bond's market price. Bonds are regarded as a lower risk investment. government bonds, in particular, are highly unlikely to miss their promised payments. Corporate bonds issued by blue-chip 'investment grade' companies are also unlikely to default; this might not be the case with high-yield 'junk' bonds issued by firms with less healthy financials. (See yield curve.)"