A bond is a loan. The buyer lends money to a government or company and receives regular interest payments in return, plus the original sum back at the end.
The bigger picture
Bonds trade after they are issued, and their prices move. Because the interest payment is fixed, a lower price means a higher return, or “yield”, for whoever buys the bond now.
Yields on government bonds act as a benchmark for many other borrowing costs, which is why a move in the bond market can quickly show up in the price of a home loan.
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