Bonds are debt instruments issued by a corporation, government, or municipality to raise money. Bonds are issued with the promise that the bondholder will be repaid principal with or without interest at the end of a specified period of time.
Debt issues can have maturities ranging from one month to thirty years or more. Some bonds are secured by collateral such as revenue or physical assets. Some are unsecured and are backed only by the creditworthiness of the issuing corporation or government entity. All debt securities are issued with a fixed face amount (known as par value); however, they may trade at a discount or a premium to par.
Investments in fixed income products are subject to liquidity (market) risk, interest rate risk, financial risk, inflation risk and special tax liabilities. Bonds tend to decline in value when interest rates rise and increase in value when interest rates fall.