A bond is a type of loan where an institution, known as the issuer, borrows money and promises to pay it back to the bondholder at a specific time.
The issuer pays interest on the bond at specified intervals and then repays the amount borrowed, or principal, on a specified maturity date. While there are a wide variety of bonds issued in the global marketplace, the two most common are corporate bonds and government bonds. Corporate bonds are issued by private companies and are generally fully taxable and secured by a combination of revenues and assets. Government-issued bonds are used to finance public infrastructure, defense, and the full spectrum of government spending. Bonds issued by the United States government are backed by the full faith and credit of nation. State and local municipalities issue municipal bonds to finance smaller projects of local interest. The interest income on municipal bonds is tax free.