For financial professionals in the UK

What is a bond?

16 Feb 2022

In this video, we explain what bonds are, why they are issued and highlight the critical components that make-up one of the world’s most popular investments.

Key takeaways

  • Bonds are a form of ‘IOU’ and represent a loan made by an investor to a borrower. Governments, local authorities, and corporations typically issue bonds as a way of borrowing money from investors.
  • Bonds are commonly referred to as fixed income investments because in return for making the loan, the investor gets a fixed rate of interest called a ‘coupon’ throughout the pre-determined term of the bond.
  • The price of a bond depends on several factors: the issuers financial strength, the maturity date of the bond, and the duration of the bond (its sensitivity to the change in interest rates)


A regular interest payment that is paid on a bond. It is described as a percentage of the face value of an investment. For example, if a bond has a face value of £100 and a 5% annual coupon, the bond will pay £5 a year in interest

How far a fixed income security or portfolio is sensitive to a change in interest rates, measured in terms of the weighted average of all the security/portfolio’s remaining cash flows (both coupons and principal). It is expressed as a number of years. The larger the figure, the more sensitive it is to a movement in interest rates. ‘Going short duration’ refers to reducing the average duration of a portfolio. Alternatively, ‘going long duration’ refers to extending a portfolio’s average duration.

A bond’s term to maturity is the length of time during which the owner will receive interest payments on the investment. When the bond reaches maturity, the principal is repaid.

These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. References made to individual securities do not constitute a recommendation to buy, sell or hold any security, investment strategy or market sector, and should not be assumed to be profitable. Janus Henderson Investors, its affiliated advisor, or its employees, may have a position in the securities mentioned.


Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.


The information in this article does not qualify as an investment recommendation.


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16 Feb 2022