A security that is generally a debt (loan) that a government or company has borrowed. In order to receive the required amount (under this loan), the state or the company sells bonds. It receives the loan against these bonds, and the bondholders receive interest from the state or the company in the form of periodic payments. In these periodic payment, often only the interest is paid, and the return of the original amount owed (principal, which is also called nominal value of the bond or nominal) is performed in the end (the maturity) with the last interest payment. Interest payments and the return of principal on bonds are usually mandatory without the possibility of skipping payment. If this happens, creditors (pension fund, mutual fund, etc.) can request the bankruptcy of the issuer of the bonds - state or company.

Government bonds are in most cases considered to be one of the safest financial assets, as they are backed by taxes collected by the state. In case of difficulties in paying the interest or the principal itself, the state can raise taxes and thus ensure that their payment will continue.

Companies also take out loans by issuing (emit) bonds. They are considered more risky than the state ones, but often - less risky than the shares of these companies. The reason is that in the rare cases of liquidation of the company, the bondholders receive the first compensations (liquidation share), and the shareholders are the last. Also, interest on bonds is paid from the company's income before taxes, so bondholders receive an interest payment before shareholders receive dividends. The higher risk of corporate bonds usually compensates their holders (those who have lent to the issuer of the bonds) with a higher interest rate.

The bonds have a different term (time to maturity) and usually the longer they are, the higher the interest rate on them.

In addition, the issuing states or companies, as well as the bonds themselves receive a risk assessment - the so-called credit rating. This credit rating is determined by independent companies called credit agencies. For example, as of June 2021, the Republic of Bulgaria has a credit rating of BBB assigned by one of the leading agencies Standard & Poor's.

Bond prices may also increase or decrease, and this may be due to a change in interest rates or a change in the issuer's credit rating. This means that in addition to interest income, we can also get capital gains, and together they form the yield on the bond.

Example:

The Republic of Greece has gone through a turbulent period as a result of the global financial crisis. At the beginning of 2006, the yield on bonds issued by the Republic of Greece with a maturity of 10 years averaged about 4%. At the peak of the crisis for the country in 2012, the yield on Greek bonds with a 10-year maturity reached 29%. The debt-to-gross domestic product ratio - one of the most widely used comparisons - of the Republic of Greece in 2012 reached 162% - one of the highest in the world. However, the country managed to get through this difficult period and continued to pay interest on its debt.