Bonds or securities are in many ways similar to loans or debts. When a person is buying a bond, he/she is actually lending money to a government, municipality, corporation, federal agency or any other entity that has issued the bond. Here, the person, who has purchased the bond, is equal to a lender while the issuer of a bond is the borrower. In return of the loan or debt, the issuer promises the bondholder that the principal amount along with a specified rate of interest will be paid when the bond gets matured. Here, the principal value is termed as face value of the bond and the interest rate is accrued during the entire life of the bond.
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Several investors consider bonds as a core element of their financial plan. This is because bonds are long term investments that have a predictable stream of payments, repayment of principal and secured returns along with interest. Hence, people consider them so as to preserve and increase their capital without any major risk. Investment in bonds is highly beneficial when one is saving for their retirement or for their child's education.
Financial market, where buying and selling of bonds occurs, is termed as Bond Market. As of 2006, the estimated value of the international bond market was $45 trillion. Unlike stock and commodity markets, bond markets in several countries exist as decentralized trading places lacking common financial exchange. However, in the US, the bond market is completely centralized. The New York Stock Exchange is the largest centralized bond market in the world and represents mostly corporate bonds. The size of the US bond market in the year 2006 was $25.2 trillion.
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