| Bonds are debt owed by a government or a company. The holder of a bond is paid interest until the date when the bond matures. Then the amount of the bond, its face value, is paid back. Investors can buy a new bond and keep it until it matures. Or they can buy and sell existing bonds. The return on a bond is called the yield. Yields and prices of existing bonds can change as investors trade them. Yields fall when investors seek the security of bonds and are willing to pay higher prices. Yields increase as prices fall. Higher yields raise the cost for individuals and businesses to borrow money. Rising yields can also hurt stock prices. When yields rise, investors often sell stocks in order to buy bonds. If investors can get high yields holding low-risk bonds, or simply keeping money in the bank, they will do it. |
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