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A bond refers to an obligation to pay a specified amount of money.

  • In the field of business, a bond functions similar to a loan and is sold by entities seeking an inflow of cash now in exchange for the promise of future interest on that cash later. Corporations often sell bonds to raise money which they can then invest in new projects or initiatives with the hope that the revenue from those new projects is greater than the amount of interest they owe on the bonds. Bond purchasers agree to wait a specified number of years, known as the maturity date, before recollecting the money they initially used to purchase the bond. In the meantime, bond purchasers collect the promised interest payments, known as coupon payments, at regular intervals. 
    • Governments also regularly sell bonds to raise money for the purposes of funding government initiatives. In the United States, government issued bonds are known as treasury bonds. Because the risk of the United States going bankrupt is miniscule, treasury bonds are generally deemed less risky, and therefore have lower interest rates, than other kinds of bonds. 
    • Much like stocks, there is a robust secondary market for both corporate and treasury bonds. 
  • In the field of criminal law, on the other hand, a bond refers to a sum of money offered up by a party to secure the performance of some legal duty. The most common kind of bond in criminal law is the bail bond. For a bail bond, a defendant offers up money in exchange for their release from custody while they await trial. This money is returned if the defendant appears for their trial. If the defendant does not appear, they are considered to have jumped bail. 

[Last updated in June of 2022 by the Wex Definitions Team]