Money & Finance › Bonds, rates & Treasuries
Bonds: lending money in exchange for interest
· Asset or instrument
Fact, law or dataA rule, statute, definition or measured number.
A bond is a loan to a government or company that pays interest on a schedule and returns the principal at maturity.
See it on the Money & Finance map →How it works
A typical bond has a $1,000 face value, a fixed coupon, say 4%, or $40 a year paid in two installments, and a maturity date. Bonds trade after issue, so their prices move with rates (see Price vs. yield). The main types are US Treasuries, municipal, corporate and mortgage-backed bonds. Bondholders are paid before stockholders in bankruptcy. Individuals can buy Treasuries at TreasuryDirect or through a brokerage, or own many bonds at once through a bond fund or ETF.
Why it matters
Bonds fund governments and companies and set the interest rates that price everything else, including mortgages and cap rates. The US bond market exceeds $50 trillion.
Think of it like
Owning a bond is like being the lender on a building, not the owner: fixed payments and first claim, but no share of the upside.
Facts, rules and data
SIFMA tracks issuance and amounts outstanding. A 1648 Dutch water-board bond, now owned by Yale, still pays interest; the US Treasury has issued bonds since 1790.
Debates and risks
After 2022, when stocks and bonds fell together, investors debate whether bonds still reliably cushion a stock portfolio.
Inside this (6)
Connections (6)
▸Bonds: lending money in exchange for interest pay regular Interest: the rent paid for using moneyFact, law or data
The connection
A bond is interest made tradable. The issuer pays the coupon rate on face value on a fixed schedule, usually twice a year for US bonds, then repays the principal. T-bills and zero-coupon bonds skip coupons: they sell below face value, and the gap paid at maturity is the interest.
When and why
Venice paid about 5% on its state loans from the 1200s; paper bonds carried coupons clipped for payment until a 1982 US law pushed issuers to registered bonds.
How we know
Every bond's legal contract, the indenture, states its coupon and payment dates; Treasury auction results publish the coupon set for each new issue.
Debates and risks
Negative-yield bonds in Europe and Japan (2014–2022) stretched the idea: lenders effectively paid to lend. Why demand held up is still argued.
▸US Treasury securities are the benchmark for Bonds: lending money in exchange for interestFact, law or data
The connection
Treasuries are treated as default-free and trade in the deepest market, so their yields are the baseline. Other bonds are quoted as a 'spread' over the Treasury of similar maturity: a company might pay the 10-year yield plus 1.2 points. When Treasury yields rise, borrowing costs for everyone else tend to rise too.
When and why
In bond markets worldwide; the Treasury market trades roughly $1 trillion a day. Commercial real estate loans are commonly quoted the same way.
How we know
New bond deals, index data and dealer quotes are routinely stated as spreads to Treasuries, as in FINRA's TRACE and ICE BofA index data.
Debates and risks
Whether Treasuries remain the safest asset as debt grows; in April 2025 they sold off alongside stocks, unsettling that assumption.
▸Why bond prices fall when yields rise governs the price of Bonds: lending money in exchange for interestFact, law or data
The connection
A bond's price is whatever makes its fixed payments earn the current market yield. When yields rise, the price must fall; when yields fall, it rises. The size of the swing grows with time to maturity (see Duration): a 30-year bond can move 15% or more on a 1-point rate change.
When and why
Present-value math is centuries old; Frederick Macaulay defined duration in 1938. The 2022 rate jump gave a vivid test.
How we know
Pure arithmetic, confirmed daily in market prices; long-term Treasury bond funds fell about 30% in 2022.
Debates and risks
The math is settled. The open question is behavioral: why banks like SVB and many investors underestimated rate risk after a decade of low rates.
▸Diversification and asset allocation traditionally pairs stocks with Bonds: lending money in exchange for interestMainstream view
The connection
High-quality bonds have often risen or held steady when stocks fell, because investors flee to safety and the Fed cuts rates. That made the 60/40 stock-bond mix the classic balanced portfolio. In 2008 the broad US bond index gained about 5% while the S&P 500 lost 37%.
When and why
Pension and endowment practice from the mid-1900s; tested in 2008, when it worked, and in 2022, when stocks and bonds fell together.
How solid is the link?
Return data: the Bloomberg US Aggregate bond index rose about 5% in 2008 and fell 13% in 2022, when the S&P 500 lost 18%.
Debates and risks
Whether the negative stock-bond correlation of 2000–2021 was the exception: before 2000, especially in high inflation, the two often moved together.
▸Asset classes: the menu of investments include Bonds: lending money in exchange for interestFact, law or data
The connection
Bonds are the main defensive asset class: fixed interest, return of principal at maturity, and payment ahead of stockholders in bankruptcy. In exchange they have earned less: about 5% a year for long-term US government bonds since 1926, versus about 10% for stocks.
When and why
Government borrowing dates to medieval Venice and Britain's consols (1751); bonds are a standard building block of every institutional portfolio.
How we know
Long-run return data, such as SBBI since 1926 and Dimson, Marsh and Staunton since 1900, show bonds' distinct returns and behavior.
Debates and risks
Whether junk bonds, inflation-linked TIPS and private credit belong in the same class as Treasuries is debated, since they behave very differently in crises.
▸World bond markets: about $160 trillion of debt (2025) are the global pool of Bonds: lending money in exchange for interestFact, law or data
The connection
Every government, agency, bank and company that borrows by issuing bonds adds to the global pool, about $160.7 trillion at end-2025. Each bond has the same core terms, coupon, maturity and issuer, but they differ by currency, credit risk and liquidity. The US accounts for about 38%, with China, Japan and Europe the next largest markets.
When and why
SIFMA's 2026 Capital Markets Fact Book, covering 2025, when the total grew 10.6%.
How we know
SIFMA and BIS debt-securities statistics, built from national central-bank and issuer data.
Debates and risks
Totals differ by source depending on whether short-term paper and securitized debt are counted.