Personal Finance August 03, 2007 Print Friendly and PDF

A bond is a debt security, similar to an I.O.U. When purchased, a bond is a loan to some entity. These entities may include corporations, the US government, local municipalities, federal agencies, and foreign governments.

The 'issuer' of the bond agrees to pay the buyer of the bond a specified rate of interest for a pre-determined length of time. The issuer will repay the face value of the bond (the principal) when it "matures," or comes due.

A corporation may use these funds to build a new plant or expand into new markets, while governments may use these funds to build roads, bridges, schools, office buildings or in the case of the federal government, to fund spending.