The Valuation of a bond might seem like a strange topic for a stockmarket publication. But very good lessons are ther and analogies for share investors, so stick to us. A bond is simply a tradeable debt security. While the stockmarket is a place where investors can easily buy and sell equity, or ownership of businesses, the bond market is a place where investors buy and sell debt, or loans. More specifically, it is a market for long term debt, as short-term debt falls under different markets, namely the bank bill and treasury note markets.
Borrowing a long-term loan gives borrowers the certainty which a short-term funding would never be able to provide. On the other hand many lenders have little interest in locking up their money for very long periods & it creates an disbalance. A bond solves that problem by giving the borrower long-term funding whilst giving the lender the flexibility of a security that can be sold at short notice although it could be for a big profit or loss depending on how interest rates have moved.
Borrowing a long-term loan gives borrowers the certainty which a short-term funding would never be able to provide. On the other hand many lenders have little interest in locking up their money for very long periods & it creates an disbalance. A bond solves that problem by giving the borrower long-term funding whilst giving the lender the flexibility of a security that can be sold at short notice although it could be for a big profit or loss depending on how interest rates have moved.
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