Bonds are financial instruments used by governments and corporations to raise capital. When an investor purchases a bond, they are practically lending money to the bond’s issuer. In return for this loan, the issuer pays the investor interest over a set period of time, after which the loan is repaid in full.

Bonds are often considered a lower-risk investment compared to stocks, as the interest payments are generally fixed and the return on the principal is typically guaranteed. However, there is always a risk of default by the issuer, which can result in a loss of principal.