Used to raise Debt Capital (instead of loaning money from banks)
Loans issued by governments or large corporations
The interest on a bond is 1:1 what the company pays for Debt Capital. There is no bank in between which charges extra fees. It get’s directly transformed to you.
Interest Rate
Should the Interest Rates rise, the prices of bonds are generally falling. Less people will be interested in them and therefore the bond loses in value.
example:
- bond was at price 100 when purchasing and has 10% interest rate yielding 110
- but if the bond rises in price to let’s say 110 by market power the interest of your investment is 0%.
- this does not happen because the interest is “gone” but because the interest is overshadowed by the price increase