Bonds

A bond is a loan. When you buy a bond, you are the lender: you hand money to the issuer — a government, a company, or a municipality — and the issuer promises to repay you according to a set schedule. That schedule is embedded in the bond's legal terms, making it a form of debt security rather…

When a government or company needs to raise money by issuing bonds, it does so in the primary market — the market for newly created securities. The most common mechanism for sovereign issuance is the auction.

The most important rule in bond mathematics is this: when yields rise, bond prices fall; when yields fall, bond prices rise. This inverse relationship is not a market convention or a quirk — it is a mathematical necessity that follows directly from how a bond's value is calculated.

Government bonds — debt issued by national governments — are the foundation of the global fixed-income market. They are treated by convention as the "risk-free" benchmark against which all other bonds are priced. The logic is straightforward: a government that issues debt in its own currency can…

Not all corporate bonds are created equal. The dividing line in the market runs between investment grade and sub-investment grade bonds, defined by credit ratings:

A conventional bond is a fixed-income instrument in name and in fact: its coupon payments are a fixed number of pounds or dollars regardless of what happens to inflation. This creates a fundamental vulnerability. If inflation runs at 5% per year while you hold a bond paying a 3% coupon, your real…

Duration was introduced by economist Frederick Macaulay in his 1938 study "Some Theoretical Problems Suggested by the Movements of Interest Rates, Bond Yields, and Stock Prices in the United States Since 1856." Macaulay defined duration as the weighted average time to receive all of a bond's cash…

Three companies dominate the global credit rating industry:

The yield curve plots the relationship between interest rates (yields) and maturity dates for bonds of similar credit quality — typically government bonds. The horizontal axis shows time to maturity (from one month to thirty years); the vertical axis shows the yield. Together, the points form a…

Bonds have historically served a critical function in diversified portfolios: they tend to perform well when equities perform poorly. During recessions and financial crises, central banks typically cut interest rates, which pushes bond prices up. At the same moment, equity prices often fall…

A bond ladder is a portfolio of bonds with staggered maturity dates — for example, bonds maturing in 1, 2, 3, 4, and 5 years. As each bond matures, the investor reinvests the proceeds into a new bond at the far end of the ladder, maintaining a consistent spread of maturities over time.

Most investors who hold bonds hold them primarily in their home country. The pull of the familiar — home bias — applies as strongly to fixed income as to equities. But the global bond market is vast: as of the mid-2020s, it exceeds $130 trillion in outstanding debt, spanning government bonds from…