Bond Definition and Legal Meaning

On this page, you'll find the legal definition and meaning of Bond, written in plain English, along with examples of how it is used.

What is Bond?

History and Meaning of Bond

A bond is a written agreement between two parties in which the issuer agrees to pay back the principal amount, along with interest, to the holder of the bond at a later date. The bond market began in the late 17th century when the Bank of England issued government bonds to fund war efforts. Since then, bonds have become a common way for governments, corporations, and other entities to raise capital.

Bonds can be structured in various ways, with different types, such as government bonds or corporate bonds, offered by different issuers. The interest rate offered on a bond is typically determined by factors such as the issuer's creditworthiness and prevailing market conditions.

Examples of Bond

1. The United States Treasury issues bonds to fund government spending. In return for purchasing a bond, an investor is promised a fixed rate of interest over a set period of time, with the principal paid back at maturity.
2. A corporation issues bonds to raise money for expansion or other business purposes. Investors can purchase these bonds and receive regular interest payments until the bond matures.
3. A municipal government issues bonds to fund public projects such as schools, parks or bridge repairs. Individuals can purchase these bonds, which are usually tax-free, and receive interest payments over the life of the bond.

Legal Terms Similar to Bond

1. Securities: The term used to describe any kind of tradable financial asset, including bonds.
2. Debt: The amount of money owed by one party to another, which may be evidenced by a bond or other written agreement.
3. Credit rating: A measure of the creditworthiness of an issuer, which can affect the interest rate offered on a bond.