A debt instrument in which an investor loans money to an entity (corporate or government) that borrows the funds for a defined period of time at a fixed interest rate. Bonds are used by companies, states and federal governments to finance a variety of projects and activities. Bonds are commonly referred to as fixed-income securities and are one of the three main asset classes, along with stocks and cash/cash equivalents. The indebted entity (issuer) issues a bond that states the interest rate (coupon) that will be paid and when the loaned funds (bond principal) are to be returned (maturity date). Interest is usually paid every six months (semi-annually) and in some cases, annually. Two features of a bond—credit quality and duration—are the principal determinants of a bond's interest rate.
Bond maturities range from a 90-day Treasury Bills to a 30-year (or more) government bond, while corporate and states are typically in the 3-to-10 year range. The maturity of a bond is either short-to-intermediate term (3-to-5 years) or long term (typically more than 15 years).