What are bonds typically considered in finance?

Bonds are primarily viewed as loans made to a borrower, which can be a corporation, government, or other entities. When an investor purchases a bond, they are effectively lending money to the issuer in exchange for periodic interest payments, known as coupon payments, and the return of the bond's face value at maturity. This structure allows investors to earn income while providing capital to issuers who may need funds for various purposes, such as financing operations or capital projects.

The nature of bonds as debt instruments makes them distinct from equities, where investors gain ownership in a company and partake in profits. Unlike real estate investments, which involve tangible property ownership, bonds are financial instruments that represent a creditor relationship. Additionally, bonds are not cash assets held by companies; instead, they reflect obligations that the issuer must repay under specified terms. Understanding this definition clarifies the role of bonds in the financial landscape as essential vehicles for both funding and investment.