What Is the Bond Market and How Does It Work? The bond market refers broadly to the buying and selling of various debt instruments issued by a variety of entities. Corporations and governments issue bonds to raise debt capital to fund operations or seek growth opportunities. In return, they promise to repay the original investment amount, plus interest. The mechanics of buying and selling bonds works similarly to that of stocks or any other marketable asset, whereby bids are matched with offers. Are Bonds a Good Investment? Like any investment, the expected return of a bond must be weighed against its riskiness. The riskier the issuer, the higher the yield investors will demand. Junk bonds, therefore, pay higher interest rates but are also at greater risk of default. U.S. Treasuries pay very low-interest rates, but have virtually zero risk.
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