Bond
A loan to a company or government, traded like a security.
You lend a fixed sum, receive fixed interest (the coupon), and get your money back at maturity. Unlike a shareholder, you are promised a return, and you are paid before shareholders in a bankruptcy.
The counter-intuitive part: bond prices move inversely to interest rates. If rates rise, your existing bond paying a lower coupon becomes less attractive, so its price falls. Long-dated bonds are far more sensitive to this than short ones.
Normal, and inverted
Inversion means investors will lock in today's rate for a decade rather than roll short-term debt. They are betting rates, and therefore growth, will be lower later.
Bonds are the anchor of most balanced portfolios, and the reference point for valuing everything else.
Assuming bonds are always safe. Long-dated bonds can lose a great deal of value when rates rise sharply.
Related terms
See Bond on a real company
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