We think of stocks as the paradigmatic investment, but bonds are the single most important force in the financial world, determining which companies and economies rise and which collapse. A bond is a form of i.o.u.; when a government or a company issues one, it is actually borrowing money with a precisely defined promise to pay it back after a specified period of time at a set interest rate. Every bond has the same basic criteria: duration, yield and risk. This means that bonds can be easily compared and traded. The typical bond may be resold dozens of times over its lifetime, for a discount or a premium on its issuing price, based on how the market feels the prospects for that issuer have changed. The current price of old bonds is updated constantly, providing a real-time scorecard for the relative riskiness of those issuing bonds, from the government of Kazakhstan to Citibank to your local hospital.
Adam Davidson, “On Money”, The New York Times Magazine (2 August 2015), 14.