What is a bond, explained simply
A bond is a loan you make to a state or a company. In exchange for your money, the issuer commits to paying you periodic interest (the "coupon") and to returning the full amount on a set date (maturity).
How it works, with an example
You buy a €1,000 bond that lasts 5 years with a 3% coupon. Each year you receive €30 in interest, and at maturity you get the initial €1,000 back. You lent money and got paid for the trouble.
Italian government bonds are called BTPs; German ones, Bunds. Companies also issue bonds to finance themselves.
Why it's more cautious than a stock
With a stock you share in a company's success (or failure): you can earn a lot, but you risk more. With a bond you know in advance how much you'll collect, as long as the issuer doesn't default (i.e. fails to repay the debt).
The flip side: usually lower returns. The more reliable the issuer (e.g. Germany), the less interest it offers you; the riskier it is, the more it must pay to convince you — the same principle behind the spread.
In short
- A bond is a loan to a state or a company.
- It pays periodic interest (coupon) and returns the capital at maturity.
- More predictable and cautious than a stock, but usually lower-yielding.
- The risk depends on the issuer: the more reliable, the less interest it pays.
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Educational content only. MarketMind explains what happens and why; it never gives investment advice. Read this guide in Italian.