How Bonds Work
A bond is a loan you make to a government or company. In return you get regular interest and your money back at the end. Here are the parts of a bond, how you earn from it and why bonds belong in many portfolios.
A bond is an IOU
When you buy a bond, you lend money to the issuer. The bond has a face value, usually $1,000, which is repaid on the maturity date. Along the way, the issuer pays interest called the coupon, typically twice a year. A $1,000 bond with a 4% coupon pays $40 a year, as two $20 payments, until it matures.
The key terms
| Term | Meaning |
|---|---|
| Face value (par) | The amount repaid at maturity, usually $1,000 |
| Coupon | The yearly interest rate on the face value |
| Maturity | The date the loan is repaid |
| Price | What the bond trades for today, which can differ from face value |
| Yield | The return you earn if you buy at today’s price and hold to maturity |
The vocabulary of bonds.
Why investors own bonds
- Steady, predictable income.
- Return of your money at maturity, if the issuer does not default.
- Often a cushion when stocks fall, especially high-quality government bonds.
- Matching money to future needs, like tuition or retirement spending.
Yields in 2026
Bond yields rose through 2026. The 10-year U.S. Treasury yield was about 4.19% at the start of the year and 4.94% on Sept. 17, 2026, then climbed to about 5.17% on Sept. 25, its highest level since 2007. For income investors, that means new bonds pay more than they have in years; for existing bondholders, it meant falling prices, as the next lesson explains.
The yield curve shows yields on bonds of different maturities.
Key takeaways
- A bond is a loan that pays interest and returns your money at maturity.
- Face value, coupon, maturity, price and yield are the key terms.
- Bonds provide income and often cushion stock declines.
- The 10-year Treasury yield rose to about 5% in Sept. 2026.