Die Heuning Pot Literature Guide
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Finance Glossary

Just call us Bond. Amortized bond.

Over 700 finance terms, Shmooped to perfection.

Bonds

Definition:

No longer the hippest spy in the world (taken over by Matt Damon or Dragon), the dictionary definition takes bonds from its Latin roots is just "an agreement." " A bond is a man's word."

Financially, a bond is an obligation to pay back money. In return for renting that money for some period of time and for the risk of that borrower not being able to pay back the money, bonds charge rent or interest.

Bonds have levels of seniority and other features which can make them "feel like" stocks or other kinds of investments. For example, it is not uncommon in large public companies to have 8 or 9 layers of bonds with fancy names like preferred, senior, junior, convertible, subordinated, debenture.

Each of these flavors of bonds has a slightly different taste with the one common protein that they are all different forms of debt obligation.

You would likely have been raised in a barn and gotten your transportation to your soccer games in a horse and covered wagon if bonds or debt didn't exist. Almost nobody buys a home without debt. Most people buy cars with debt. Most students pay for their college education with debt and that plastic in your wallet, yeah, it's debt. The one unifying string that has woven the financial fabric of this country has been financial trust.

Because our laws around financial obligations are so strict, for hundreds of years, this country has developed a deep sense of trust in another party's promise to repay. That promise is taken seriously by everyone and anyone with whom you will do business in your future as you try to buy toys, shelter and self-actualization (a convertible Porsche) in your life.

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